Indonesia Medium-term Fiscal Policy Framework Striking The Right Balance Between Reform and Growth

Transcription

1 Euromoney Indonesia Financing & Investment Forum April 2018 Indonesia Medium-term Fiscal Policy Framework Striking The Right Balance Between Reform and Growth Prof. Suahasil Nazara Head of Fiscal Policy Agency, Ministy of Finance Indonesia

2 Euromoney Indonesia Financing & Investment Forum 2018 OUTLINE 1 INDONESIA MEDIUM-TERM FISCAL POLICY FRAMEWORK 2 INDONESIA 2018 BUDGET POLICY

3 INDONESIA MEDIUM-TERM FISCAL POLICY FRAMEWORK

4 Medium Term Fiscal Policy Framework Human Dimension Priority Sector Dimension Equity Dimension OBJECTIVES STRENGTHEN FISCAL MANAGEMENT TO ENCOURAGE INVESTMENT AND COMPETITIVENESS DIRECTION Strenghtening budget quality Expanding fiscal space Maintaining sustainability and risk management STRATEGY 1. Strengthening Infrastructure spending for competitiveness and investment 2. Streamlining social protection programs and priorities 3. Strengthening the quality of fiscal decentralization 1. Increasing tax ratio through improving administration and service 2. Fiscal incentives to encourage investment, industrialization and exports 3. Optimizing state assets management 4. Increasing efficiency of non-priority expenditure as well as the effectiveness of subsidies and social assistance 5. Developing creative and innovative financing 1. Managing healthy deficit and debt ratio 2. Reaching positive primary balance 3. Strengthening fiscal resilience (fiscal buffer, flexibility and utilization of SAL to anticipate uncertainty) source: Ministry of Finance 4

5 Fiscal Framework for Medium-term * Focusing on productive spending and sustainability * Based on initial MoF calculation GDP growth is expected to continue to achieve positive growth momentums. Inflation is benign supported by improving logistic and infrastructure acceleration. Interest rate and exchange rate are stable, benefiting from strong fundamental and positive investor perception. Indicator Realized Realized Realized Budget Outlook Economic growth (%, yoy) Inflation (%, yoy) Month Treasury Bill (SPN) (%) Exchange Rate (Average, IDR/USD) 13,392 13,307 13,384 13, ICP (USD/barrel) Oil Production (thousands of barrel/day) Gas Production (millions of barrels/day) Main features: Improvement in fiscal space through revenue enhancement; Efficiencies in non-priority spending; Creative and innovative financing instrument development; and Positive primary balance in % to GDP APBN Revenue & Grants ,7-13,5 12,7-13,9 13,5-14,0 13,6-14,4 Tax Ratio ,4-11,9 11,4-12,5 11,6-13,0 11,8-13,6 Total Spending ,2-15,5 14,3-15,6 15,0-15,7 15,1-16,0 Capital Expenditure 1.4 1,5-1,7 1,8-2,3 2,2-2,7 2,3-3,0 Primary Balance (0,59) (0,45) - 0,05 0,05-0,1 0,05-0,2 0,1-0,2 Budget Deficit (2,19) (2,05) - (1,6) (1,7) - (1,6) (1,7) - (1,5) (1,6) - (1,5) Total Debt ,35-28,8 28,64-28,49 28,33-27,80 27,89-26,24 5

6 Tax Policy Framework Optimizing revenue while maintaining supportive investment climate Policies are directed at expanding the tax base and increasing compliance, hence steady increase of tax revenue. Tax ratio will be increased through intensification, intensification, potential excavation, law enforcement as well as various policy breakthroughs, tax reform, and optimization of state asset management. Tax Collection Strategy Enhancing Regulation Financial Data Openness for Tax Purpose Improving Sectoral Coverage Sectoral based for tax targeting and tax collecting Improving Tax Compliance Data digitalization Institutional Cooperation Law Enforcement Medium-term Policies Revenue Optimization Taxation for Digital goods/transaction Tax Office and Custom office data sharing Tax Policies to improve competitiveness Custom policies related to Regional Comprehensive Economic Partnership (RCEP) and European Union Comprehensive Economic Partnership Agreement (EU CEPA) Tax Incentives to promote investment Well targeted and comprehensive tax incentives Enhancing Tax Authority Organization, Human Resources, and Business Process Tax Education Enhancing Tax Administration Service Develop e-services, Expand Tax Coverage (mobile tax unit & micro tax office) E-registration Transparencies of information AEOI Implementation Compliance improvement 6

7 Government Spending Policies Strengthen Value for Money and encourage private sector contribution Synergy between Line Ministries to create effective and efficient programs; Operational spending efficiency; and The percentage of budget for energy subsidy to total state expenditure continues to decline, in line with the government to increase productive spending. Infrastructure Programs Improvement in domestic production capacity and competitiveness Basic infrastructure Social Spending Effectiveness Poverty eradication and improvement in equality. Improvements in database, simplification in disbursement mechanism, synergy between social programs. Qualified Human Resources Refinement of labor productivity through education & health programs. Supporting R&D and technological improvement process. Effective & Efficient Bureaucracy Betterment of public service. Enhancement of public sector official (13th salary, Bonus, Pension scheme) Fiscal Support for Productive Sector Support to sectors which have comparative advantages (Food, Energy, Maritime, Tourism, Creative Industries) Risk Mitigation Disaster mitigation Environmental support Other Policies Increasing the effectiveness of Transfer to Regions as an instrument of equity and development and strengthening of the Village Fund in supporting the development and eradication of village poverty. Increased productive budget to support infrastructure development in the context of strengthening competitiveness. Strengthen and enhance the effectiveness of social protection programs policy Strengthening the quality of human resources (education, health, character, R & D) 7

8 Indonesia s Future Development Policies Focusing on well targeted policies to improve pro-poorness of fiscal policy Toward well targeted social assistance programs focusing on bottom 40. Poverty alleviation and supports towards poor segments of the society continuously being strengthened through well designed social programs and targeted subsidies. Indonesia Unemployment rate (%) (1.0) Source: BPS Indonesia GINI Ratio Source: BPS Indonesia Poverty Rate (%) Source: BPS Improve access to basic services Education and Health ( Equality of supply side between regions, Increased effectiveness of social protection programs) Infrastructure and Housing (Improved and equitable supply side infrastructure, Housing finance program) Improve access to jobs through improvements in the quality of human resources Encourage vocational education Provision of skills training and entrepreneurship training Link & match and Mastery of technology Improve access to capital (KUR, LPDB KUMKM, Ultra Micro financing) Strengthening tax functions for income redistribution (Expansion of tax base, Progressive tax implementation) Controlling the cost of goods ( Maintain a balance of demand and supply, Improving the staple trade and distribution efficiency, Subsidies are on target) 8

9 Improved Budget Allocation Towards Local Governments Promoting better allocation of budget spending to local governments A minimum 25% of general transfer fund must be earmarked for public service infrastructure; and Village transfer policy improvement. More weight on the poor population. Affirmation on remote and very remote villages with large poor population. Revenue sharing fund to promote equal opportunity for natural resource producers & high tax earners Special Autonomy & Fund for DIY General Transfer Fund Specific Autonomy Regional Incentive Fund Incentive Fund allocation has been increased to enhance local government performance and public service delivery Village Transfer Reformulated to (1) Give more weight on the poor population. (2) Improving inequality between villages (3) Synergy with other poverty alleviation programs such as PKH, Rastra, and People's Business Credit Indonesia continues its improvement on regional transfer effectiveness, to spur growth throughout regions The increased allocation indicates the Government s commitment to support development in regions Special Transfer Fund Non-Physical Allocation Fund Reduce the burden to access public services, especially of education, health, and government services School Operational Assistance (BOS), Teachers Allowance and Health Operational Cost Physical Allocation Fund Improving public service infrastructure; Affirmations fund for underdeveloped areas, borders, remote islands, and transmigration. 9

10 INDONESIA 2018 BUDGET POLICY

11 Strategic Policy in 2018 Budget Fiscal risk mitigation Accumulated Cash Surplus/SAL (fiscal buffer) Fiscal risk reserve fund: Legal framework (crisis clause); BSF Public service quality improvement Continuous bureaucratic reform implementation State apparatus and pensioners welfare improvement Poverty and inequality eradication : Rp283.7T PKH;10 Million family Rp17.3T); BidikMisi:401,5 thousands college student (Rp4.1T) Health insurance program (JKN) :92.4 Mn recipients (Rp25.5T) PIP:19,7 mn of student (Rp11T) Subsidy & food assistance:15.6 Mn family (Rp13.4T) Village fund: village (Rp60T) 8 Quality of health: Rp111,0 T PBI (JKN):92.4 million people Health facility:49 hospitals Children immunization (0-11 y/o): 92.5% Road: 856 km Railway:639 km sp New airports in 15 locations Irigation:781 km Electrification ratio: 95.5%; Housing:7.062 unit 4 Revenue Optmization Increasing tax ratio (expanding tax base and compliance improvement)); Optimization of state asset and natural resource management; Expansive and prudent Deficit is under control (2.19% PDB); Debt ratio below 30% PDB; Expansive to support development agenda Highly committed on infrastructure: Rp410,7T Quality of education: Rp444,1T PIP:19.7 million student BOS:262.2 thousands school School rehabilitation:61.4 thousands 11

12 Increasing Tax Revenue Over the Years Future policies will be directed at expanding the tax base and increasing compliance Tax policy is driven by reform efforts with the main objectives to expand tax base and to improve compliance. The implementation of Automatic Exchange of Information (AEoI) will provide additional information and materials for Tax collection. Tax revenue & Tax Ratio IDR Trilion *preliminary realization Tax ratio derived from tax revenue + revenue from natural resources/gdp 2018 target IDR 1424 Tn of Tax Revenue IDR 38.1 Tn from Oil and Gas IDR Tn from Non OG IDR Tn of Custom & Excise 10.7 Source: * 2018 APBN Tax Revenue Tax Ratio % to GDP Tax Improvement Efforts Automatic Exchange of Information (AEoI) Expanding tax base Preventing Base Erosion Profit Shifting. Data and Information System More up to date integrated system e-filing, e-form and e-faktur. Taxpayer Compliance Building sustainable compliance e.g. through e-service, mobile tax unit, KPP Mikro, and outbond call. Tax incentive tax holiday and tax allowance Reviewing VAT exemption policy for several items. Human Resource and Regulation Improving service and institution framework 12

13 % to GDP Commitment to Continue Strengthening Productive Spending Resources are used to promote inclusive and sustainable growth Line ministries spending will be directed to improve planning process, operational spending efficiency, and an early procurement process Allocation of energy subsidy to total expenditure continues to decline, in line with the government's commitment to increase spending on infrastructure Subsidy allocation to GDP Central Government Spending 2015 IDR 1,183.3 T 2016 IDR 1,154.0 T Source: 2018 IDR 1,454.5 T 2017 IDR 1,259.6 T Line Ministries IDR T Non Line Ministries IDR T Energy Subsidy Non-Energy Subsidy Interest Payment Energy Better targeting Targeted for the poor Database improvement Inflation management Integration with energy subsidy Synergy with social assistance programs and transfer to regions Staple good price management Improving agriculture productivity Cost efficiency Controlling cost of financing Deepening government bond market Controlling debt burden 13

14 hamdanhasan.deviantart.com Fiscal Strategy to Improve Welfare Focus on allocating more on productive avenues Indonesia is committed to strengthen the quality of its people through infrastructure support, good education and health spending Strengthen fiscal policy function (Allocation, Stabilization, Distribution) Infrastructure Allocation 2014: Health Allocation (5% of Spending) 2014: : : : : : : : : Infrastructure acceleration to tackle regional and global challenges Target : Road: 856 km Railway:639 km sp New airports in 15 locations Irigation:781 km Electrification ratio: 95.15%; Housing: 7062 unit Focuses: improving supply side, better access, service quality, promoting preventive action, and maintain JKN sustainability. Policy direction Improving distribution of health facilities and health personnel. Strengthening promotive and preventive programs Improving the effectiveness and sustainability of the national health insurance program. Education Allocation (20% of Spending) Increasing the role of local government for supply side as well as service side. 2014: : : : : Focus on improving access, distribution, and quality of education Policy direction Improving access, distribution, and quality of education. Improving school facilities and infrastructure. Synergy between Central and Local Government. Strengthening vocational education and link and match curriculum. Widening access (BOS, PKH, PIP, Bidik Misi and DPPN) for sustainable education. 14

15 Social Spending and Subsidy Allocation Will Be Improved Driven by a more comprehensive database Better quality of expenditure to promote inclusiveness and sustainable growth Various policies supporting the young Indonesian to be productive Growth objective to decrease poverty and inequality Program Indonesia Pintar Program Keluarga Harapan Program Bantuan Iuran JKN Source: KEMENKEU 2017 Target :18.3 Million Students 2018 Target : 19.7 Million students Source: KEMENKEU 2017 Target : 6 Million Family 2018 Target : 10 Million Family Electricity Subsidy *Unaudited Energy Subsidy (LPG 3Kg) Food Subsidy (Rastra / Raskin) 2018 APBN Source: KEMENKEU Subsidy recipients 50.1 Million 450 VA : 23,1 million connections 900 VA : 22,9 million connecitons Source: KEMENKEU Targeted distribution Subsidy recipients using combined database from TNP2K and Ministry of Social Affairs Source: KEMENKEU 2017 Target : 92.4 Million Recipients 2018 Target : 92.4 Million Recipients Source: KEMENKEU Modification from Food Subsidy Program 2018 Target : 15.6 Million Poor family 15

16 Prudent and Sustainable Financing Plan Promoting lower debt risk with more efficient cost Keeping Loan to GDP Ratio under 30 Financial market expansion and deepening to enable financing on a minimum cost and risk Decreasing primary balance deficit while focusing on domestic source of financing Support acceleration of infrastructure development through creative financing, underwriting and investment financing Improve access to finance for MSMEs Improving access to and quality of education: strengthening the role of LPDP as SWF with the expansion of service programs (increasing affirmative and vocational scholarships) and strengthening investment management Improved access to low-income housing finance (MBR) that is more targeted and affordable, through integration of financing schemes Encourage export increase through the NIA program International Bonds (USD, EUR, JPY-denominated) Avoid crowding out in domestic market Provide benchmarks for corporate bonds Investor base diversification Front Loading Issuance Faster access to liquidity Anticipate developments in global environment Prudence: Keeps the debt ratio within safe limits ( % of GDP) Cost Efficiency of Debt : Cost efficiency of debt and maintaining fiscal sustainability forward Productivity : Debt used for productive spending in support of achievement of development targets al. in accelerating infrastructure development Balance : Keep the debt composition of DN and LN within safe and controlled limits 16

17 Below the line Above the line Strategy to Improve Infrastructure Developing new ways to attract infrastructure investment Continue to improve connectivity within the country through the building and development of roads, airports, bridges, and railways. Infrastructure funding gap, expected to be potentially fulfilled by either SOE & Private Sector Infrastructure Needs by Sector (In trillions Rupiah) ELECTRICITY PORT ROADS HOUSING OIL & GAS Source : RPJMN Area of infrastructure financing alternative STATE REVENUE Tax Allowance, Tax Holiday, Fiscal Incentives STATE EXPENDITURE Line Ministries (Ministry of Public Works, Ministry of Transportation, Ministry of Energy, etc) Non Line Ministries (o/w. VGF, PDF, grants, PSO) ransfer to the Regions & Vilage Fund (o/w. DAU (25%), Physical DAK, Vilage Fund) TELCO &IT TRAINS AIRPORT Update on PPP Projects No Status Total projects Sector 1. Financial Close 7 Electricity, water and sanitation, toll road, telecommunication 2. KPBU agreement 8 Toll road 3. On transaction 3 Water supply and toll road 4. FBC (under project development fund) 6 Transport, health facility, toll road, water supply OTHERS FINANCING Revolving Fund (o/w. FLPP), Project based bonds (e.g. SUKUK), Capital injection in PT SMI & PT IIF (financing) as well as PT IIGF (guarantee), Subsidiary Loan Agreement, Guarantee, Investment (capital injection) in SOE, Capital injection in BLU LMAN for land clearing 17

18 Euromoney Indonesia Financing & Investment Forum THANK YOU

19 APPENDIX

20 GLOBAL AND DOMESTIC ECONOMIC SNAPSHOT

21 E 2018P 2019P India China Vietnam Malaysia* Indonesia Singapore Australia* US Japan Brighter Prospect for Global Economy Maintain near-term momentum, but challenge loom There is a positive outlook on global economic condition, supported by improvements in advanced economies. Indonesia is one of the best performers in terms of growth speed. Despite brighter prospect, risks remain tilted to the downside coming from policy uncertainty, structural challenges e.g. ageing population, and geopolitical tension. Economic Growth for 2017 (%, yoy) Global Price Indicator Jan-15 Aug-15 Mar-16 Oct-16 May-17 Dec Global Inflation (LHS) Source : WEO, IMF Source: Bloomberg *) projection 1.7 Global Commodity Price Index (RHS) Source: CEIC Global Economic Projection (%, yoy) Source : WEO, IMF World Advanced economies Emerging market and developing economies ASEAN-5 21

22 Indonesia s Strong and Stable Economic Growth Sound domestic fundamentals Household consumption contributed the most to the country GDP. Investment activities have been picking up thanks to infrastructure projects. International trade is rebounding. High investment and trade growth show a vibrant economic activity. in % 1. Calculations based on 2010 constant prices 2. Including non-profit household consumption Q1 Q2 Q3 Q4 Y Q1 Q2 Q3 Q4 Y Shares Consumption Govt Consumption Investment Exports Imports Consumption Credit Growth %, yoy J A J O J A J O J A J O Investment Indicator (%, yoy) Cement Sales J MM J S N J MM J S N J MM J S N Imports Profile (%, yoy) Source: Bank Indonesia Source: CEIC Source: BPS Commercial Car Sales Cons. Good Raw Material J M M J S N J M M J S N J M M J S N Capital Goods

23 Growth Fundamentals Remain Healthy Indicates a movement towards industry-based economy Agricultural sector growth is influenced by unfavorable weather condition. Primary Sector Agriculture, Forestry, Fisheries, Mining & Quarrying Growth (%, yoy) 2015 : 0.79% 2016 : 2.40% 2017 : 2.59% Agriculture sector growth (%, yoy) 18.0 Food Crops 13.0 Fisheries 8.0 Source: BPS Manufacturing growth was driven by production increase of non-oil and gas industries. Infrastructure projects is supported construction sector. Improved national connectivity, and increasing number of tourism sector helped to fuel service sector. Secondary Sector Tertiary Sector 9.00% 6.00% 3.00% 0.00% Manufacture, Electricity, Gas and Water, Construction Trade, Transportation & Warehousing, Communication & Information, Financial & Insurance Service, Other Manufacturing sector growth (%, yoy) Large Industries Small Industries 5.7% 5.8% 4.8% 4.0% 2015 : 4.82% 2016 : 4.58% 2017 : 4.95% 2015 : 5.45% 2016 : 5.66% 2017 : 5.68% 4.7% 4.7% Source: BPS Plantation -7.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Industrial sector growth (%, yoy) Source: BPS 7.0 Non OG Oil and Gas (incl. Coal) -5.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q

24 Stable and Improving Macroeconomic Indicator The positive improvement of trade performance, current account, and stable inflation Inflation is more benign supported by more stable food inflation as supply side improves. Trade balance surplus has helped the Current account balance profile. Improvements in Balance of Payment helps to provide a high foreign reserve (highest in history). Non oil and gas sector growth (%, yoy) (10.0) (20.0) Exports Source: BPS, Statis calc. Imports Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Trade Balance Total : USD 9.5 Bn (2016) to USD 11.9 Bn (2017) Trade Balance Non-Oil&Gas : USD 15.2 Bn (2016) to USD 20.4 Bn (2017) Trade Balance Oil&Gas : - USD 5.6 Bn (2016) to - USD 8.5 Bn (2017) Balance of Payment CPI and Inflation rate (Annual % YoY) 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 4.3% 8.4% 8.4% Source: BPS 3.4% 3.0% 3.6% Annual % YoY Overall balance (USD Billion) Capital and Financial Account Balance Current Account Balance Current Account Balance ( % GDP) Source: Bank Indonesia 24

25 Improving investment climate The attractiveness of Indonesia as an investment destination country is high Positive FDI flow shows a high interest in Indonesia. Investment in the primary sector consists of 18% of total. Secondary and tertiary sectors are 39.7% and 42.3%. FDI flows to Indonesia accounted only less than 1%, lower than India (2.5%) (UNCTAD, 2017). Direct Investment Realization Total DDI FDI Q YoY QoQ YoY DDI 16.30% 4.20% 21.30% FDI 10.60% 0.30% 8.60% Total 12.70% 1.70% 13.10% Investment in Java (55% of total FDI) Jakarta 16% Constructions, Metals, Food Top 5 Foreign Direct Investment in Indonesia by Country Singapore Singapura Japan Jepang Tiongkok China Hong Hong Kong Banten 8% Housing, Food, Basic Metal West Java 15% Transportation, Housing, Food, Constructions 10.4% 6.6% 15.5% Food, Crops and Constructions 26.2% Central Java 7% East Java 9% Transportation, Warehouse, Communication, Food, Constructions South Korea Korea Selatan 6.3% Others Lainnya 35.0% 25