POLITICAL ECONOMY OF APBN IN OVERCOMING ECONOMIC DISPARITY

Transcription

1 MINISTRY OF FINANCE REPUBLIC OF INDONESIA POLITICAL ECONOMY OF APBN IN OVERCOMING ECONOMIC DISPARITY PROF. SUAHASIL NAZARA Chairman of Fiscal Policy Agency 7 September 2017

2 O U T L I N E POLITICAL ECONOMY OF APBN POVERTY AND INEQUALITY Economic Growth and Welfare Indicators (Poverty, Inequality, Unemployment Rate, HDI) Strategic Issues FISCAL FOR OVERCOMING INEQUALITY APBN for Achieving welfare Tax for Redistribution Effectivity of Social Protection Programs Refocusing Priority Budgets Prudent Debt Management FURTHER THOUGHTS 2

3 1 POLITICAL ECONOMY OF APBN STRICTLY CONFIDENTIAL 3

4 POLITICS AND ECONOMIC POLICY Politics (institution and policy) influence Economic Performance In the other hand Economic Policy influences Political performance Necessary factor for economic performance are political stability and rule of law. Nevertheless Political success often based on sound economic policy (Inclusive, sustainable, and Responsible) Unlike (independent) monetary policy, Fiscal Policy is in the domain of Executive Power. Current Government can decide the vision, objective and technicalities of fiscal policy (Revenue, Spending, Financing). 4

5 BUDGET IS A RESULT OF COLLABORATIONS Parliamentary Process Technocratic Politics Governance Data analysis. Economic modeling. Long-term growth strategy. Revenue, Spending and Financing Design. Political promises Cabinet meetings Discussion with Parliament Regional budget development Budget acceleration Governance Accountability and transparency 5

6 BUDGET ROLE AS THE ANCHOR OF ECONOMIC DEVELOPMENT STABLE AND SUPPORTIVE ECONOMIC AND BUSINESS CLIMATE MAINTAIN PEOPLE PURCHASING POWER REVENUE Provide incentive to strategic sectors. Adjust non-taxable income to be inline with current condition. SPENDING Infrastructure development Provide subsidy for poor and maintain people purchasing power Long term investment through education and health. FINANCING Investment in SOEs to support priority programs. Bonds management to help deepen domestic financial market. Credible and productive debt management. 6

7 POVERTY AND INEQUALITY 2 Economic Growth and Welfare Indicators (Poverty, Inequality, Unemployment Rate, HDI) Strategic Issues STRICTLY CONFIDENTIAL 7

8 SOUND AND STABLE ECONOMIC GROWTH YoY (%) Tahunan (%) GROWTH SNAPSHOT ON SEMESTER ,12 5,0 4,94 4,93 5,05 4,82 4,74 4,9 4,77 5,17 4,92 5,18 5,0 5,01 4,94 5,01 5,01 Driven by domestic demand Households consumption grew by 5,0% Capital investment grew by 5,1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Sumber: BPS, diolah Positive international trade, export grew by 5,8% & import grew by 2,8% Government consumption grew by 0,0 % 8

9 IMPACT OF ECONOMIC GROWTH ON POVERTY AND INEQUALITY Persen (%) Economic growth contributes to poverty and inequality reduction but not yet optimal. Indonesian economy has been steadily growing during the last 10 years. Average growth: 5,64%. Poverty is decreasing yet the rate of decrease has slowed down Economic growth 1% : Poverty 0,116% : Poverty 0,049% Inequality is increasing during then relatively stagnant afterward about 0,40-0,41. In 2017, Gini ratio is declining to 0,393 The growth of consumption of the poor (low income group) is very low Real Consumption Growth, Rata-rata National nasional average 1,34% Source: TNP2K Poor Near Poor Middle Rich Consumption of middle income group grows higher (nominal) 9

10 INDONESIA IN 2045 Feb-06 Agu-06 Feb-07 Agu-07 Feb-08 Agu-08 Feb-09 Agu-09 Feb-10 Agu-10 Feb-11 Agu-11 Feb-12 Agu-12 Feb-13 Agu-13 Feb-14 Agu-14 Feb-15 Agu-15 Feb-16 Agu-16 Feb-17 Jumlah Penduduk Miskin (million people) Tingkat Kemiskinan LONG-TERM GROWTH STORY INTACT Declining inequality, poverty, and unemployment ratio ,3 12,4 Poverty 11,7 11,5 11,0 11,1 10,7 10, , , , ,5 10 9,5 9 0,42 0,415 0,41 0,405 0,4 0,395 0,39 0,385 0,38 Gini Ratio 0,413 0,414 0,406 0,402 0,394 0, ,5 Unemployment Growth 5,3 Source: BPS INDONESIA S POTENTIAL TO BECOME A DEVELOPED COUNTRY DEMOGRAPHICS ECONOMY Population: 309mm Working-Age Population: 52% Urban Population: 75% Middle Class Population: 80% 8 th largest economy in the world Income per capita: US$29,300 Structure of the economy shifting towards higher value-added industries Share of economy from service sectors: 73% 10

11 INEQUALITY Economic growth has not been equitably enjoyed among income groups and regions Saving Distribution by Segments as of October 2016 (%) Consumption Distribution by Income Group (%) 44,79 46,45 46,89 36,11 35,89 36,09 19,10 17,67 17, Wiliamson Index ,81 0,49 0,84 0,61 40% terendah 40% menengah 20% tertinggi Source: BKF s calculation Note : IW < 0,35 low inequality; 0,35 IW 0,5 middle inequality; IW > 0,5 high inequality 0,53 0,52 0,48 0,44 0,24 0,26 0,11 0, Sumatera Jawa Balinustra Kalimantan Sulawesi Malpapua Nasional 0,78 0,76 Source: LPS 0,25 98 Number of Account's Proportion Economic growth has been enjoyed more by the richest 20%. The consumption of this group has been increasing since There is high disparity in asset ownership. The proportion of account with saving above Rp 1 billion is only 0,25% yet it dominates 64% of total savings in banking system. Inequality in economic output (PDRB/kapita), in national level, tends to decrease from 0,81 (2011) to 0,78 (2015) but in Jawa, Balinustra, dan Sulawesi tends to increase Saving's Proportion < Rp 100 million Rp million Rp million Rp billion > Rp1 billion 11

12 Aceh Sumut Sumbar Riau Jambi Sumsel Bengkulu Lampung Babel Kepri DKI Jabar Jateng DIY Jatim Banten Bali NTB NTT Kalbar Kalteng Kalsel Kaltim Kaltara Sulut Sulteng Sulsel Sultra Gorontalo Sulbar Maluku Malut Pabar Papua Indonesia 58,1 70,0 70,0 70,7 71,2 69,6 68,2 69,3 67,7 65,8 63,1 65,9 69,6 70,1 70,0 69,7 74,0 71,0 69,1 69,1 69,2 67,5 73,7 71,1 69,8 69,3 66,3 63,6 62,2 67,6 66,6 70,2 74,6 79,6 78,4 IN AREA OF HUMAN CAPITAL There is disparity between western and eastern part of Indonesia 66,53 67,09 67,7 68,31 68,9 69,55 70,18 HDI 70,18 Life expectancy at birth: 70,9 year Mean years of schooling 7,95 year Expected years of schooling 12,72 year GNI per capita (adjusted) Rp

13 STRATEGIC ISSUES OF POVERTY AND INEQUALITY POVERTY REDUCTION IS SLOWING DOWN Indicates chronic poverty accompanied by rising of inequality LIMITED AND UNEQUAL DISTRIBUTION OF ACCESS Basic Services: education, health, infrastructure Access to capital Skill and job opportunity SINERGY BETWEEN CENTRAL AND LOCAL GOVERNMENT The accuracy of targeting Program implementation Inter programs harmonization NEED TO IMPROVE THE EFFECTIVITY OF POVERTY AND INEQUALITY REDUCTION PROGRAMS Strengthening the data accuracy to have a better targeted program Better distribution mechanism: faster, more efficient, inline with financial inclusion policy Sinergy between relevant programs to improve effectivity Optimize Transfer to Region (General and Special Allocation Fund, Village Fund) forreducing inequality Social empowerment program to improve sustainable livelihood 13

14 3 FISCAL FOR OVERCOMING DISPARITY a. APBN for Achieving welfare b. Tax for Redistribution c. Effectivity of Social Protection Programs d. Refocusing Priority Budgets e. Prudent Debt Management STRICTLY CONFIDENTIAL 14

15 a APBN for Achieving Welfare STRICTLY CONFIDENTIAL 15

16 BUDGET AS AN INSTRUMENT TO ACHIEVE WELFARE HDI POVERTY EQUALITY WELFARE EDUCATION SECURITY HEALTH INFRASTRUCTURE 16

17 CHALLENGES OF FISCAL MANAGEMENT Promoting economic growth and reducing poverty, inequality and unemployment REVENUE T a x R e f o r m C u s t o m & E x c i s e R e f o r m O p t i m u m N o n T a x I n c r e a s i n g T a x R a t i o F i s c a l I n c e n t i v e t o i m p r o v e i n v e s t m e n t c l i m a t e CENTRAL GOVERNMENT EXPENDITURES E f f i c i e n c y & S i m p l i f i c a t i o n F i g h t C o r r u p t i o n P r i o r i t y B a s e d P l a n n i n g a n d S i n e r g y W e l l t a r g e t e d S u b s i d y W E L F A R E FINANCING P r u d e n t a n d w i s e T o w a r d p r o d u c t i v i t y I n n o v a t i v e a n d c r e a t i v e f i n a n c i n g ( L P D P / S W F, L M A N, P P P ) R i s k c o n t r o l Fiscal Sustainability & Sound Fiscal TRANSFER TO REGION D A U - e q u a l i s e r S p e c i a l A l l o c a t i o n F u n d f o r P o v e r t y R e d u c t i o n E f f e c t i v e F u n d A c c o u n t a b l e a n d E f f i c i e n t S p e c i a l A u t o n o m y F u n d 17

18 FISCAL POLICY DIRECTIONS Stimulating economy and achieving welfare 1 Sound &sustainable Budget 2 Strengthening key fiscal policy functions Sustainable 3 Development 4 WELFARE Revenue optimization Quality of spending Sustainable Financing Allocative function Stabilization function Distributive function Economic aspect Social aspect Environment aspect Inclusion Economic growth Decreasing unemployment Poverty reduction Decreasing inequality o A sound budget serves as a basic foundation to achieve welfare o By having a sound budget, the key fiscal policy functions would work optimally to boost sustainable development o Sustainable development will promote welfare 18

19 2018 BUDGET Deficit in 2018 lower than ,19% GDP (2017 : 2,67% GDP) Central Government Expenditures 1.443,3 Line Ministries Non Line Ministries 814,1 629,2 TAX REVENUE 1.609,4 NON TAX REVENUE 267,9 REVENUE 1.878,4 EXPENDITURES 2.204,4 Transfer to Region & Village Fund 761,1 Primary Balance (78,4) Decreasing from 2017: (144,3) shows that APBN is more sustainable Deficit (325,9) Financing 325,9 Debt Financing Investment 399,2 (65,7) 19

20 STRATEGIC POLICIES OF 2018 BUDGET FISCAL RISK MITIGATION Accumulated Budget Surplus Fiscal Risk Contingency Fund for BSF EXPANSIVE, CLEAR DIRECTED, AND WELL MEASURED Deficit 2,19% GDP QUALITY IMPROVEMENT OF PUBLIC SERVICES Better welfare for state apparatus and retirees Strengthening Bureaucracy Reform RAPBN 2018 CONSISTENTLY DEVELOPING INFRASTURCTURE : Rp409T Road: 856 km Railway: 639 km New airports: 15 location Irrigation: 781 km Electrification ratio: 95,15% Housing: unit SOCIAL PROTECTION PROGRAMS PKH: 10 million family (Rp17,3T); JKN: 92,4 million family (Rp25,5T) PIP:19,7,million student (Rp10,8T) Bidik Misi:401,5 thousand student (Rp4,1T) Food Assistance &Subsidy :15,6 million (Rp13,4T) Village Fund: Village(Rp60T) HIGH QUALITY EDUCATION Rp440,9T PIP: 19,7 million student BOS: 262,2 thousand schools BETTER HEALTH SYSTEM: Rp110,2T School PBI JKN: 92,4 million people development/rehabilitation: 61,4 Health facilities: 49 hospitals thousand Child immunization (0-11 month): 92,5% 20

21 STRATEGY TOWARD EQUALITY 1 2 Improving access to basic services Health and Education Increasing health and education facilities Improving the distribution among between regions Improving the effectivity of social assistance program Sustainability of JKN (National Health Insurance Program) Infrastructure and Housing Improving the distribution of infrastructures among regions (DAU, DAK and Village Fund) Affordable housing (interest subsidy, Down Payment subsidy) 3 Improving access to capital Improving access to financial credit services (KUR, LPDB, KUMKM) ACCELERATING POVERTY ALLEVIATION AND INEQUALITY REDUCTION Increasing access to job opportunity Improving vocational education Skill and entrepreneurship training Link & match vocational with industry Expanding the use of technology 4 5 Strengthening tax function for income redistribution Tax base expansion Implementing progressive tax Capital Gain Tax Unutilized asset tax Price stabilization Balancing supply and demand Improving infrastructure & logistic system Well targeted subsidy 21

22 Human Capital Oppor -tunity Land ECONOMIC EQUALIZATION POLICY Aims to strengthen the national economy based on democracy and market-based system Announced in April 2017 embodies national economic transformation to successfully overcome the middle income trap and achieve the status of a developed country in the long-term THREE KEY PILLARS AND QUICK WIN PROGRAMS Social Forestry The Ministry of Environment and Forestry (KLHK) will distribute access to social forest management covering an area of 211,522 ha for 48,911 families with total permits of 134 Initial focus will be on 11 s with a total area of ha for 9,411 households Agrarian Reform and Transmigration Land Legalization Transmigration land of 220,000 ha and 3,800 ha under the National Agrarian Operation Project (PRONA) is ready to be legalized from a total of 4.5 million ha, while 23,000 ha of displaced land and 707,000 ha of forest disposal are also ready to be redistributed from a total of 4.5 million ha The Land Object of Agrarian Reform (TORA) will be expanded to several provinces, including Banten, West Java, Central Java, Riau, West Kalimantan, West Sumatra, North Sumatra, and Maluku Affordable Housing for the Urban Poor Committed to housing development within urban areas that are well connected to the center of activity, economic resources and public transportation for the urban poor Core housing policies, among others, include provision of land for affordable housing (land availability), implementation of Housing Scheme for MBR (social housing), and the Housing Financing Scheme Targeted Development of Key Sectors Focused on addressing issues related to the tax system, development of manufacturing and IT industries and retail sector Improve the competitiveness of the retail sector and strengthen synergies between traditional and modern retail Vocational Training and Labour Markets Vocational and labor policies structured for capacity building of human resources, especially to align with industry needs and to support government priority programs Policy steps will be taken by the government to draft and improve on the road map for vocational education and training, through reclassification and prioritization of business fields and positions Job matching program that will focus on strengthening vocational programs for industries Vocational schemes in place for the automotive, tourism and transportation sectors 22

23 b Tax for Redistribution STRICTLY CONFIDENTIAL 23

24 ,9 723,3 873,9 980,5 1077,3 1146,9 1240,4 1285,0 1472,7 TAX ROLE IN ECONOMY Revenue and Allocation Redistribution Regulation TAX ROLE IN ECONOMY Tax as source of fund for State Budget Tax could change the income distribution between parties in economy (capital owner, workers, land owner) Accelerate economic activities through incentive Tax revenue could influence resources allocation in economy. Tax influences savings and investments to boost productive economy that leads to job creation Influence consumption pattern for price stability TAX AS SOURCE OF FUND IN STATE BUDGET Despite the tax ratio tends to decrease, share of tax in Budget is increasing 11,1% 11,2% 11,8% 11,9% 11,9% 11,4% 10,7% 10,8% 11,5% % 13% 11% 9% 7% 5% 3% 1% -1% TAX FOR INCOME REDISTRIBUTION Tax revenue used to fund poverty and inequality reduction programs Tax policy directly influence the pattern of income distribution (collect more from rich and otherwise) Progressive Income Tax Optimize VAT (neutral and sustainable) Optimize asset and capital tax Nominal (Rp Tn) % of GDP 24

25 % of GDP % of GDP TAX REFORM IS CRUCIAL TAX AMNESTY the first step of tax reform Redemption Money 1,10 Assets Declared 39,4 With more than 965,900 taxpayers participating in the program 0,04 0,15 0,20 0,62 0,58 0,17 0,12 0,04 2,1 3,9 8,3 5,2 3,6 0,3 NEXT STEPS Regulation reform Administration reform Germany (2004) Belgium (2004) Italy (2009) Source: Ministry of Finance Note: Figures in IDR trillion 1. End of tax amnesty period III Chile (2015) Indonesia (2016) India (1997) South Africa Spain (2012) Australia (2014) India (1997) Spain (2012) Chile (2015) Indonesia (2016) Italy (2009) South Africa Australia (2014) TAX OPTIMALIZATION STRATEGY Improving Tax Compliance Expanding Tax Base Exploring potency of sectoral taxes Extensification of New Excisable Goods Simple and convenient tax system Strengthening database Designing selective and efficient tax incentives and exemptions Increasing collection and closing the gap between potency and realization of tax revenue Expanding excisable objects to limit consumption of certain goods to reduce externalities 25

26 c Effectivity of Social Protection Programs STRICTLY CONFIDENTIAL 26

27 SPENDING REFORM: REFOCUSING ON PRIORITIY SECTORS Share of budget for infrastructure, education, and health has been increased. Nevertheless, the effectivity and efficiency still need to be improved Beginning of Subsidy Reform 375,4 408,5 416,6 426,7 401,1 440,9 409,0 17,5% Education 129,9% 345,3 350,3 Infrastructure 310,8 299,8 290,3 317, : ,4 187,8 184,3 177,9 137,8 104,1 106,7 110,2 80,7% Health 41,5 48,2 61,0 74,8 94,4 77,3 103,4 70,5% Energy Subsidy

28 ACCELERATING POVERTY ALLEVIATION AND INEQUALITY REDUCTION Through optimizing social assistance, subsidy, and Village Fund TOTAL (trillion rupiah) 292,8T POLICY DIRECTIONS Improving targeting accuracy by using unified data Sinergy between programs Refinement of scheme and cashless distribution Subsidy* *exclude tax subsidy Program Keluarga Harapan Program Indonesia Pintar Contribution for the poor in JKN Food Assistance Bidik Misi Village Fund 161,6 17,3 10,8 25,5 13,5 4,1 60,0 Program Keluarga Harapan 10 million family Contribution for the poor in JKN 92,4 million people Program Indonesia Pintar 19,7 million student Food Assistance and Subsidy 15,6 million family Expanding Non cash food assistance Usaha Ekonomi Produktif Village Fund 106,7 thousand family village 28

29 ENCOURAGING BETTER TARGETED SUBSIDY Better targeting, better mechanism, and synergy between programs TOTAL 172,4 (trillion rupiah) POLICY DIRECTIONS Improving targeting accuracy of electricity subsidy (900VA) Sinergy between subsidy and social assistance such as Rastra and Non Cash Food Assistance (BPNT) Improving data accuracy of subsidy and social assistance beneficiaries using unified data Shifting seed subsidy into direct assistance for seed (BLBU) through social assistance Energy Subsidy 103,4 Fuel and LPG Subsidy 51,1 Electricity Subsidy 52,2 Enhancement distribution mechanism to improve accuracy Closed subsidy for LPG 3 kg Targeted subsidy only for household using 450 VA and 900 VA Non energy Subsidy Food Subsidy 7,3 Fertilizer Subsidy 28,5 69,0 For 5,6 million targeted family Sinergy with Non Cash Food Assistance (BPNT) Refinement of beneficiaries data using NIK and kartu tani Volume 9,5 million ton 29 29

30 % of HH Expenditure Subsidy/Benefit Received by HH, Million IDR BENEFIT INCIDENCE ANALYSIS Lowest decile household received subsidy and social assistance about 35% of total consumption Benefits by Market Income Decile: Absolute and Relative Terms 40% 12 35% 10, % 25% 8 20% 5,2 6 15% 10% 5% 1,4 1,8 2,1 2,3 2,6 2,9 3,5 4, % Expenditure Decile 0 LPG Electricity Diesel Rastra PKH PIP Total Subsidy and Social Assistance (RHS) Source: PKEM-BKF staff calculation using Susenas

31 Cum. Share of Subsidy/Social Assistance IMPACT ON POVERTY AND INEQUALITY PKH (CCT) and Program Indonesia Pintar are most effective in reducing poverty and gini ratio Concentration Curve Effectiveness in Reducing Poverty and Gini 100% 90% Electricity Subsidy 80% 70% PKH 60% LPG Subsidy Electricity Subsidy Diesel Subsidy 50% 40% Diesel Subsidy Rastra PKH Indonesia Pintar Rastra Effectiveness in reducing Gini (poin / tr Rp) Effectiveness in reducing poverty (% / tr Rp) 30% 20% 45 degree line Disposable Income LPG Subsidy 10% Indonesia Pintar 0% Disposable Income Decile -0,020 0,000 0,020 0,040 0,060 0,080 0,100 0,120 0,140 0,160 Indeks Efektivitas Source: PKEM-BKF staff calculation using Susenas

32 d Refocusing Priority Budgets STRICTLY CONFIDENTIAL 32

33 MAINTAIN 20% BUDGET ALLOCATION FOR EDUCATION Equalizing access & quality of education, strengthening vocational and SWF for education (trillion rupiah) 2014: 375,4 2015: 408,5 8,7% 2016: 416,6 8,6 8,8% 2017: 426,7 2,0% 3,3% 2018: 440,9 Central Government Rp146,6T 2,4% Transfer to Region Rp146,6T SWF Rp15T Target Smart Indonesia Program (Program Indonesia Pintar) School Operational Assistance (Bantuan Operasional Sekolah/BOS) Assistance for College Student (Bidik Misi) 19,7 million student 56 million student 401,5 thousand college students POLICY DIRECTIONS 1. Expanding access to education (particularly for the poor) and improving quality of education 2. Improving the quality of school facilities 3. Synergizing between central and sub national government da 4. Strengthening vocational schools and synchronizing the curriculum of SMK ( link nd match) 5. Synergizing programs to improve the access (BOS, PKH, PIP, Bidik Misi dan DPPN) for sustainable education Development/ rehabilitation of school/ classroom Teacher allowances 61,2 thousand Non PNS 213,7 thousand teachers PNS 257,2 thousand teachers 33

34 GOVERNMENT HAS BEEN ALLOCATING 5% FOR HEALTH BUDGET SINCE 2016 Expanding supply side, improving access and quality of health care and maintaining the sustainability of JKN 2014: 61,0 (trillion rupiah) 2015: 74,8 2016: 104,1 8,6 22,6% 2017: 106,7 39,2% 2,5% 3,3% 2018: 110,2 Central Government Rp80,7T Transfer to Region Rp29,5T Target Jaminan Kesehatan Nasional (JKN)/ National Health Insurance Family planning (KB) Immunization for baby 0-11 month 92,4 million people 1,8 million people 92,5% 26,3 % POLICY DIRECTIONS 1. Increasing and improving the uneven distribution of health facilities and and health professionals 2. Strengthening promotive and preventive programs focused on NCDs and programs for maternity through Gerakan Masyarakat Sehat (Germas) 3. Improving the effectivity and sustainability of JKN 4. Strengthening local government role for supply side and improving the quality of health care High quality health care facilities Certification of drugs and food Malaria and HIV treatment 49 hospitals/ health facilities 74,0 thousand 52% HIV cases treated 95% Malaria cases treated 34

35 INFRASTRUCTURE BUDGETS TO ACCELERATE DEVELOPMENT Focus on improving capacity, competitiveness, connectivity, and housing for low income group RAPBN 2018 Rp409,0T (trillion rupiah) KemenPUPR Kemenhub DAK 106,9 48,2 28,0 6,1 Government (PMN) (trillion rupiah) 145,5 155,9 154,7 256,1 269, APBNP 401,1 409, RAPBN Road development and preservation New road 856 km LRT 23 km sp Affordable housing for low income group Toll Bridge 25 km m New airport 15 location Vertical housing Stimulus Assistance unit 180,0 thousand unit Interim figures Pembangunan jalur KA 639 km sp Information and Technology Integrated broadband village BTS in blank spot area, focus in remote area 100 location 380 location 35 35

36 e Prudent Debt Management STRICTLY CONFIDENTIAL 36

37 Germany China Indonesia Turkey Argentina Australia South Africa Italy India Mexico Brazil United Kingdom Japan United States WITH RELATIVELY STABLE GROWTH, INDONESIA HAS BEEN ABLE TO MAINTAIN ITS LOWER FISCAL DEFICIT % 10,0 8,0 9,0 Average deficit and economic growth in a decade GDP Pertumbuhan GrowthPDB 7,4 Defisit Deficits fiskal 6,0 5,6 4,8 4,0 2,0 1,2 2,2 2,7 2,1 2,2 2,1 1,1 0,5 1,3 0,0-2,0-4,0-0,7-1,1-1,6-2,1-2,7-2,8-0,6-3,1-3,1-3,5-3,3-4,3-6,0-8,0-6,2-6,4-6,7 Source: World Economic Outlook IMF April 2017, CEIC, MoF Indonesia 37

38 MAINTAINING DEFICIT AND DEBT RATIO AT MANAGEABLE LEVELS Deficits vs Debt ratio ,83 28,97 Commitment to maintain debt to GDP at manageable levels (27-29% of GDP) Ensuring debt to support productive activities ,33 Innovative and creative financing to support infrastructure ,45 Commitment on international institutions ,68 24,84 Supporting the development of micro, small, medium enterprises (MSMEs); housing programs; and educational allocations through SWF Debt to GDP (%) Deficits (%) 38

39 Triliun DEBT POSITIONS (as of July 2017) DEBT OUTSTANDING POSITIONS Debt ownership s dominated by domestic investors Domestic Bond 58,4% DEBT COMPOSITIONS Global bond 22,2% Rp Trillions KOMPOSISI UTANG Foreign debt 19,3% Domestic debt 0,1% Rupiah Foreign currency In Trillion Rupiah Foreign Debt 729,6 Domestic Debt 5,4 Global Bond 838,9 Domestic Bond 2.206, (500) Valas Rupiah Source: Ministry of Finance 39

40 PORTFOLIO AND DEBT RISKS INDICATORS ( ) Foreign debt (%) Debt to GDP (%) Average Time to Maturity (ATM) (years) Interest payment to GDP (%) Sumber: Kementerian Keuangan 40

41 Japan US UK Brazil India Germany Mexico Argentina S Africa China Thailand Philippines Turkey Indonesia Russia LOW PUBLIC DEBT Compared to developing and developed countries Debt Ratio, % 250% 239% 200% 150% 107% 100% 50% 89% 78% 70% 68% 58% 51% 50% 46% 42% 34% 29% 28% 17% 0% Source: World Economic Outlook IMF, April

42 AND LOWER DEBT PER CAPITA compared to other countries around the world Indonesia $1K Compared to other emerging and developed countries, Indonesia has even lower debt per capita Source: howmuch.net 42

43 4 FURTHER THOUGHTS STRICTLY CONFIDENTIAL 43

44 COLLABORATION BETWEEN GOVERNMENT AND BUSINESS COMMUNITY TOWARD EQUALITY IN ECONOMY Maintaining investment climate Government provides incentives to boost economic activities Growing economy is expected to lead to job creation Increasing access to basic services Collaboration in infrastructure development PPP (Public Private Partnership) schemes Expanding partnership from infrastructures to other sectors PPP for building hospitals and schools in the remote area Synergy in developing new tourism area Government builds the basic infrastructures (road, airport, electricity) Private builds the hotels, shopping mall, tourist attractions Business could invest in human capital development Support the link and match programs with vocational Hire high quality Bidik Misi graduated Collaborate with LPDP to provide internship opportunity 44

45 K E M E N T E R I A N K E U A N G A N Thank You 45