IND O NESIA D EVELO P MENT Frederico Gil Sander, UP D ATE D - - PowerPoint PPT Presentation

IND O NESIA D EVELO P MENT UP D ATE D ECENTRALIZATIO N THAT D ELIVERS

Frederico Gil Sander, Lead Economist December 14, 2017

Recent economic developments and

• utlook

Decentralization that delivers

How did id t the e Indones esia ian ec econom y per erform in Q3 20 201 7?

GDP growth picked up

4

SOURCE: BPS; WORLD BANK STAFF CALCULATIONS

• 4
• 2

2 4 6 8 Sep-14 Jun-15 Mar-16 Dec-16 Sep-17 Change in inventories

• Stat. discrepancy

Net exports Investment Government consumption Private consumption GDP Contributions to growth yoy, percentage points

Inves tment at a multi-year high

5

• 2
• 1

1 2 3 4 5 6 7 Sep-14 Sep-15 Sep-16 Sep-17 Buildings & Structures Machine & Equipment Vehicles Other Equipments Cultivated Bio. Res. Intellectual Property Investment Contributions to growth yoy, percentage points

SOURCE: BPS; WORLD BANK STAFF CALCULATIONS

Exports s urged

6

• 10
• 5

5 10 15 20 Sep-14 Sep-15 Sep-16 Sep-17 Goods: Non-Oil & Gas Goods: Oil & Gas Services Export of Goods and Services

Contributions to growth yoy, percentage points

SOURCE: BPS; WORLD BANK STAFF CALCULATIONS

Ho How im po portant nt w as t s the rec ecover ery in in com

• m m od
• dity

pric ices es?

Prices for Indones ia’s key commodity exports generally increas ed

8

60 100 140 180 220 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Base Metals Coal LNG Palm Oil Index January 2016 = 100

SOURCE: WORLD BANK; CEIC; WORLD BANK STAFF CALCULATIONS

Commodity tailwinds did play a role in recent economic performance

9

Higher commodity-related exports Machinery investments possibly linked to mining Destocking linked to high exports with low production in agriculture and mining

But encouraging s igns outs ide commodities

10

Export decomposition shows important role of non- commodity manufactures (shoes, auto parts) Strong FDI inflows in sectors including wholesale and retail trade and household goods Capital expenditure by central government up

11

Ada apa dengan

Konsumsi 2?

Rp

Cons umption weakened in H1, but s hows s igns

• f recovery in Q3

12

CEIC, WORLD BANK STAFF CALCULATIONS

4.8 5.5 3 4 5 6 Q1 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 Q3 2017 Qoq saar Growth Yoy Growth

Lebaran Quarters

Percent

Weaknes s in the firs t half due to trans itory factors

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Electricity tariff hikes for 19m 900VA households Increased tax enforcement following tax amnesty program Political uncertainty

Recovery reflects waning of trans itory factors and s trong fundamentals

14

Low unemployment (5.5% Aug ‘17 vs. 5.6% Aug ‘16) Contained inflation, especially food Stable Rupiah

Why the divergence with retail s ales ?

15

Some indicators show an improving trend (motorcycle sales up) Increasing shift from goods to services (37 percent of non-food cash consumption) E-commerce unlikely to be a significant driver – for now (still less than 2% of sales but growing fast)

Outlo look a and r ris isks

Favorable outlook

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SOURCE: BANK INDONESIA, CENTRAL BUREAU OF STATISTICS (BPS), MINISTRY OF FINANCE, WORLD BANK STAFF CALCULATIONS

2016 2017f 2018f Real GDP Annual percent change 5.0 5.1 5.3 Consumer price index Annual percent change 3.5 3.8 3.5 Current account balance Percent of GDP

• 1.8
• 1.6
• 1.8

Budget balance Percent of GDP

• 2.5
• 2.7
• 2.2

… des pite a number of downs ide ris ks

External

G3 monetary policy normalization Growth in China Commodity prices Geopolitical risks

Domestic

Political season Loss of reform momentum Energy prices Weak tax collection

Key mes s ages

The I e Indones esian ec economy will accel eler erat e e modest ly int o Q Q4 2017 a 4 2017 and 2018 s 2018 support ed by domes est ic and ext er ernal en engines es

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Further acceleration in investment growth requires improvements in the business environment, infrastructure Ensuring that domestic energy prices are market- driven will protect the space for infrastructure spending

Key mes s ages

The Indonesian economy will accelerate modestly into Q4 2017 and 2018 supported by dom estic and external engines

20

Fur urt he her accelerat ion n in n inv nvest ment nt g growt h h req equires es improvem emen ent s in t he e busines ess env nvironm nment nt , i inf nfrast ruc uct ur ure Ensuring that dom estic energy prices are m arket- driven will protect the space for infrastructure spending

Key mes s ages

The Indonesian economy will accelerate modestly into Q4 2017 and 2018 supported by dom estic and external engines

21

Further acceleration in investm ent growth requires im provem ents in the business environm ent, infrastructure Ensuring t hat domes est ic en ener ergy prices es are e market et - driv iven and b boost in ing t t ax c colle llect io ions will p ill prot ect t he he space for hi highe her inf nfrast ruc uct ur ure spend nding ng

Recent economic developments and

• utlook

Decentralization that delivers

Over half of public s pending in Indones ia is now conducted by s ubnational governments

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83.5 46.8 10 20 30 40 50 60 70 80 90 100 2000 2015 Central Government Province District

SOURCE: APBN AND SIKD DATA; WORLD BANK STAFF CALCULATIONS

Percent

Acces s to bas ic s ervices has improved in the years s ince decentralization…

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Improved sanitation 34% Improved water 38% Improved sanitation

65%

Improved water 87%

SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS

Bant nt aeng ng, Sout ut h h Sul ulawesi 2001 2015

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Enrolment rates Junior High School: 68% Senior High School: 45% Enrolment rates Junior High School: 43% Senior High School: 19%

SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS

Belu, NTT TT 2001 2015

SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS

Acces s to bas ic s ervices has improved in the years s ince decentralization…

… but quality varies widely

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Timor Tengah Selatan:

Stunting rate 70% (2013)

Wakatobi, Southeast Sulawesi:

Stunting rate 11% (2013)

SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS

… but quality varies widely

27

Mahakam Ulu, East Kalimantan

Education score 33 (2014)

Langkat, North Sumatra:

Education score 76 (2014)

SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS

By its elf, more s pending does not improve

• utcomes

28

SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS

Governance challenges are as s ociated with poor performance

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Many ny hi high h spend nding ng d dist rict s ha have poor a aud udit r resul ult s – and p poor

• or
• u
• ut com
• mes

About 43 percent of the top 5 percent of districts in term s of average spending per capita have average service access rates in the bottom 10 percent of districts (2008-2014) Only one of these districts received an unqualified opinion in both 2014 and 2015 Hig igher in inequalit lit y is is correla lat ed wit it h p poor performance This is consistent with findings in the academ ic literature that inequality increases the risk of local elite capture, which in turn is associated with weak perform ance

The three i’s of improving local s ervice delivery

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Incentives Interaction Information

Central Government Local Government Citizens & Businesses

Performance- based grant Assess- ment Capacity building

The three I’s of improving local s ervice delivery

31

Incen

ent ives es f for per erformance

Local governm nment nt e evalua uat ion n sy syst st ems

Align performance measurements with key bottlenecks Embed independent verification mechanisms Strengthen the pole and capacity of Provinces

Perf rform rmance-base sed fisc scal t ransf sfers

Increase impact of DID through improved performance measures and allocations Increase impact of the DAK by instituting greater results orientation

The three I’s of improving local s ervice delivery

32

Inf

nformat ion n for bot h t h t he he cent nt ral g governm nment nt and nd cit izens s t o asse ssess p ss performance

Improve availability of outcome indicators at the kabupaten, kota and desa levels Make detailed and comparable data on local government spending easily available Public availability of data creates a virtuous circle leading to better data quality

The three I’s of improving local s ervice delivery

33

Int

nt eract ion n – bet ween n cit izens ns and nd bus usine nesses, a and nd local gover ernmen ent s a and ser ervice e provider ers

Enhance transparency to foster citizen engagement Enhance transparency to foster citizen engagement

Provide local leaders, government agencies, citizens and firms with access to detailed information about performance and evaluation results

Develop local Develop local-level el i indices es of ser ervice d e del eliver ery and t he e busines ess env nvironm nment nt

This can help create a race-to-the-top in service provision and the business environment

SOURCE: KPPOD

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