World Bank Approves US$400 M for Indonesian Fiscal Policy Reform

TEMPO.CO, Jakarta - The World Bank's Board of Executive Directors approved the first Indonesia Fiscal Reform Development Policy Loan in an attempt to boost revenue collection and improve the quality of spending, both are key elements to accelerate growth, reduce poverty and distribute equal prosperity in South East Asia's biggest economy.

"Fiscal reforms will allow the government to allocate more funds to programs that will directly benefit the poor," said Rodrigo Chaves, World Bank Country Director for Indonesia.

The US$400 million budget will be disbursed to support the government's policy and institutional reforms to improve revenue collection and spending. Relative to its regional and emerging market peers, Indonesia has one of the lowest revenue-to-GDP (13.1 percent in 2015) and tax-to-GDP (10.8 percent) ratios, causing the country to lose half of its potential tax revenue.

As a result, public spending has been insufficient to support Indonesia's development plans, with expenditure accounting for only 16.9 percent of GDP in 2014, compared to an average of 28 percent for middle-income countries in Asia.

The Fiscal Reform Development Policy Loan is the first of a series of budget financing to support reforms related to improving spending composition and efficiency, budget execution, strengthening tax administration, reducing the costs of paying taxes and increasing revenue potential through broadening the tax base.

MAHINDA ARKYASA