IND O NESIA D EVELO P MENT Frederico Gil Sander, UP D ATE D ECENTRALIZATIO N Lead Economist December 14, 2017 THAT D ELIVERS
Recent economic developments and outlook 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 Change in inventories Stat. discrepancy Net exports Investment Government consumption Private consumption GDP Contributions to growth yoy, percentage points 8 6 4 2 0 -2 -4 Sep-14 Jun-15 Mar-16 Dec-16 Sep-17 SOURCE: BPS; WORLD BANK STAFF CALCULATIONS 4
Inves tment at a multi-year high Buildings & Structures Machine & Equipment Vehicles Other Equipments Cultivated Bio. Res. Intellectual Property Investment Contributions to growth yoy, percentage points 7 6 5 4 3 2 1 0 -1 -2 Sep-14 Sep-15 Sep-16 Sep-17 SOURCE: BPS; WORLD BANK STAFF CALCULATIONS 5
Exports s urged Contributions to growth yoy, percentage points 20 15 Goods: Non-Oil & Gas Goods: Oil & Gas Services Export of Goods and Services 10 5 0 -5 -10 Sep-14 Sep-15 Sep-16 Sep-17 SOURCE: BPS; WORLD BANK STAFF CALCULATIONS 6
Ho How im po portant nt w as t s the rec ecover ery in in com om m od odity pric ices es?
Prices for Indones ia’s key commodity exports generally increas ed Index January 2016 = 100 220 Coal 180 Base Metals 140 Palm Oil LNG 100 60 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 SOURCE: WORLD BANK; CEIC; WORLD BANK STAFF CALCULATIONS 8
Commodity tailwinds did play a role in recent economic performance Higher commodity-related exports Machinery investments possibly linked to mining Destocking linked to high exports with low production in agriculture and mining 9
But encouraging s igns outs ide commodities 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 10
Ada apa dengan Konsumsi 2 ? Rp 11
Cons umption weakened in H1, but s hows s igns of recovery in Q3 Qoq saar Growth Yoy Growth Percent Lebaran Quarters 6 5.5 5 4.8 4 3 Q1 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 Q3 2017 CEIC, WORLD BANK STAFF CALCULATIONS 12
Weaknes s in the firs t half due to trans itory factors Electricity tariff hikes for 19m 900VA households Increased tax enforcement following tax amnesty program Political uncertainty 13
Recovery reflects waning of trans itory factors and s trong fundamentals Low unemployment (5.5% Aug ‘17 vs. 5.6% Aug ‘16) Contained inflation, especially food Stable Rupiah 14
Why the divergence with retail s ales ? 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) 15
Outlo look a and r ris isks
Favorable outlook 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 SOURCE: BANK INDONESIA, CENTRAL BUREAU OF STATISTICS (BPS), MINISTRY OF FINANCE, WORLD BANK STAFF CALCULATIONS 17
… des pite a number of downs ide ris ks G3 monetary Political policy season normalization Loss of Growth in reform China momentum External Domestic Energy Commodity prices prices Weak tax Geopolitical risks 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 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 19
Key mes s ages The Indonesian economy will accelerate modestly into Q4 2017 and 2018 supported by dom estic and external engines 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 20
Key mes s ages The Indonesian economy will accelerate modestly into Q4 2017 and 2018 supported by dom estic and external engines 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 21
Recent economic developments and outlook Decentralization that delivers
Over half of public s pending in Indones ia is now conducted by s ubnational governments Central Government Province District Percent 100 90 80 70 60 50 83.5 40 30 46.8 20 10 0 2000 2015 SOURCE: APBN AND SIKD DATA; WORLD BANK STAFF CALCULATIONS 23
Acces s to bas ic s ervices has improved in the years s ince decentralization… 2001 Bant nt aeng ng, Sout ut h h Sul ulawesi 2015 Improved sanitation 65% Improved water 87% Improved sanitation 34% Improved water 38% SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS 24
Acces s to bas ic s ervices has improved in the years s ince decentralization… 2015 Belu, NTT TT 2001 Enrolment Enrolment rates rates Junior High Junior High School: 43 % School: 68% Senior High Senior High School: 19 % School: 45% SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS 25
… but quality varies widely Timor Tengah Selatan: Stunting rate 70% (2013) Wakatobi, Southeast Sulawesi: Stunting rate 11% (2013) SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS 26
… but quality varies widely Mahakam Ulu, East Kalimantan Education score 33 (2014) Langkat, North Sumatra: Education score 76 (2014) SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS 27
By its elf, more s pending does not improve outcomes SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS 28
Governance challenges are as s ociated with poor performance 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 oor out com ou omes 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 29
The three i’s of improving local s ervice delivery Central I ncentives Government Local I nformation Government Citizens & I nteraction Businesses 30
The three I ’s of improving local s ervice delivery I ncen ent ives es f for per erformance Local governm nment nt e evalua uat ion n Capacity sy syst st ems building Align performance measurements with key bottlenecks Assess- Embed independent verification mechanisms ment Strengthen the pole and capacity of Provinces Performance- Perf rform rmance-base sed fisc scal t ransf sfers based grant Increase impact of DID through improved performance measures and allocations Increase impact of the DAK by instituting greater results orientation 31
The three I ’s of improving local s ervice delivery I nf 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 32
The three I ’s of improving local s ervice delivery I nt 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 33
TERIM IM A K KASIH IH THA HANK NK Y YOU
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