The World Bank Group in Indonesia
Chapter 3 | The World Bank’s Support for More Efficient Public Finances
Highlights
The World Bank helped the government strengthen fiscal controls and modernize budget execution through systems such as the State Treasury and Budgetary System (Sistem Perbendaharaan dan Anggaran Negara) and the Treasury Single Account, which enhanced transparency, accountability, and fiscal discipline. However, the World Bank’s efforts to mobilize domestic revenues stalled because of political sensitivities related to tax reforms and difficulties in navigating large, complex procurements.
More than $75 million in trust funds enabled sustained technical assistance, capacity building, and policy dialogue—extending the World Bank’s influence well beyond its own budget.
The World Bank’s strong access to the Ministry of Finance—bolstered by embedded advisers and a minister of finance who was formerly a World Bank managing director—amplified its policy influence.
The World Bank effectively supported politically difficult energy subsidy reforms that freed up fiscal space for greater government spending in health, infrastructure, and social programs.
The World Bank demonstrated an ability to recover from policy reversals and reestablish relevance when government commitment faded, maintaining a positive overall trajectory despite setbacks.
Government Priorities and Challenges
In the decade after the Asian financial crisis, Indonesia faced large spending gaps and inefficiencies, in part because of fragmented budgeting and large energy subsidies. Public investments decreased from about 8.0 percent of the GDP between 1994 and 1997 to about 3.6 percent in 2012 (Lewis 2014), well below East Asia’s 2014 average of 7.7 percent (Fay et al. 2019). Indonesia also had large spending gaps in health and social protection. For example, public spending on health was 1.5 percent of the GDP in 2017, compared with the 4.9 percent regional average and 4 percent upper-middle-income country average (World Bank 2020b).1 Decentralization placed about 500 subnational governments in charge of most public services and nearly 35 percent of public spending. However, the low budget execution capacity of these entities reduced spending efficiency and increased opportunities for corruption. Similarly, poorly targeted energy subsidies constrained Indonesia’s fiscal space. At the start of the evaluation period, energy subsidies for liquid fuels and electricity were the largest single component of state spending, accounting for one-fifth of the central government’s budget and equal to 4 percent of the GDP (IMF 2013). Indonesia suffered from other challenges as well, including a disconnect between planning and budgeting and cumbersome procurement processes.
Indonesia’s low DRM constrained its space for increasing spending. Revenue mobilization declined sharply in the early 2000s, with revenue as a share of the GDP falling from 20.8 percent in 2001 to 15.1 percent by 2013. This share placed Indonesia at less than half of the emerging market average of 27.0 percent of the GDP (IMF 2013, 2024b). Tax revenue stood at about 10 percent of the GDP in 2013, about 6 percentage points below the country’s estimated tax potential of 16 percent (World Bank 2024a). These low revenues limited the fiscal space for increasing investment spending.
Relevance of World Bank Engagement in Reforming Public Finances
The World Bank used a comprehensive set of interventions to support Indonesia’s spending and revenue reforms.2 Over the evaluation period, the World Bank provided about $4.5 billion in operational support for strengthening public finance administration, including investment lending for a financial management information system (FMIS) and programmatic and stand-alone DPLs to secure government commitments to fiscal reforms. About 40 World Bank analytical work programs totaling $50 million informed the government’s reform agenda. Additionally, the World Bank executed several large trust funds worth over $60 million for capacity building and knowledge, reinforcing the reform agenda. The World Bank’s support for PFM made the public administration sector the largest share of lending to Indonesia over the evaluation period, totaling $5.8 billion and 28 percent of total commitments (figure 3.1).3
Figure 3.1. World Bank Operational Commitments by Sector, FY13–23
Figure 3.1. World Bank Operational Commitments by Sector, FY13–23
Source: Independent Evaluation Group, portfolio review.
Early on, the Bank Group support helped build Indonesia’s Fiscal Policy Agency (Badan Kebijakan Fiskal; BKF) capacity to analyze data and inform budgeting and policy formulation. At the start of the evaluation period, BKF was still building its data management and forecasting capacity and lacked sophisticated analytical pieces to guide policy formulation. In response, the World Bank—through the Australian government’s Department of Foreign Affairs and Trade–financed Support for Enhanced Macroeconomic and Fiscal Policy Analysis (SEMEFPA) program—embedded consultants in BKF to build its capacity to produce evidence-based macroeconomic and fiscal policy. The World Bank also provided on-demand analysis of specific policy questions on issues such as fuel subsidy reforms, infrastructure spending, and revenue collection.
Early operational support focused on investment policy lending to strengthen the foundations of public finance. At the start of the evaluation period, several Bank Group projects for establishing effective PFM were underway. The Government Financial Management and Revenue Administration Project (GFMRAP) supported the development and deployment of an FMIS called the State Treasury and Budgetary System (Sistem Perbendaharaan dan Anggaran Negara; SPAN) and helped consolidate government spending under the Treasury Single Account. A complementary Project for Indonesian Tax Administration Reform (PINTAR) planned to roll out an information and communication technology tax system, although that project would ultimately be canceled. In conjunction with Indonesia’s decentralization reforms, the World Bank devoted attention toward improving PFM at the subnational level through the Local Government and Decentralization Project (FY10) that piloted mechanisms for improving the accountability and reporting of central government transfers to subnational governments for infrastructure investments (figure 3.2). The project was a $720 million investment and the first project in Indonesia to use an output-based disbursement model (before PforR instrument). This project achieved its objective of improving the accountability of government’s main capital grant—Special Allocation Fund (Dana Alokasi Khusus).4 The World Bank also approved several small recipient-executed trust fund projects to build subnational capacity for budget delivery and monitoring.
Figure 3.2. World Bank Support Toward Fiscal and Public Financial Management, 2013–23
Figure 3.2. World Bank Support Toward Fiscal and Public Financial Management, 2013–23
Source: World Bank Operations Portal data.
Note: BP = budget process; CLM = climate; DPL = development policy loan; DRM = domestic revenue mobilization; FP = fiscal policy; INSTANSI = Institutional, Tax Administration, Social and Investment; IPF = investment project financing; PFM = public financial management; PforR = Program-for-Results; RETF = recipient-executed trust fund; SINERGIS = Strengthening Intergovernmental Transfers and Subnational Finance for Service Delivery in Indonesia; SNG = subnational government.
World Bank support for PFM and fiscal reforms was relevant to constraints and the government’s evolving needs and limited capacity. The World Bank’s capacity building within BKF enhanced macrofiscal forecasting and realistic budgeting, both of which are necessary for effective fiscal controls. The World Bank’s later development policy financing support for improving public spending effectiveness aligned with the government’s evolving capacity and needs. The Bank Group’s support for fiscal and PFM reforms was largely relevant to constraints, but support for DRM reforms was less so, in part because the DRM reforms under the World Bank’s programmatic Fiscal Reform DPL were dropped as the World Bank was unable to overcome the challenging political climate surrounding tax reforms at that time.
Bank Group support followed best practices by transitioning from a focus on developing core functionality to enhancing spending efficiency and effectiveness. The literature on sequencing PFM reforms indicates that effective reforms should first establish a foundation of financial compliance and control, then implement mechanisms for fiscal stability and sustainability, and finally introduce systems to enhance spending efficiency and effectiveness (Diamond 2013). The World Bank’s support mirrored this sequencing, beginning with establishing a sound PFM legal and regulatory framework and enacting budget and treasury reforms to establish fiscal controls (figure 3.3). Next, the World Bank provided technical assistance to BKF to improve its macrofiscal forecasting and realistic budgeting capacity. The World Bank’s later support for effective service delivery would address more complex challenges, including weak medium-term budget planning, fragmented central and subnational government FMISs, and other constraints to effective spending.
Figure 3.3. Sequencing of World Bank’s Fiscal and Public Financial Management Engagements
Figure 3.3. Sequencing of World Bank’s Fiscal and Public Financial Management Engagements
Source: Independent Evaluation Group.
Developing an effective FMIS was relevant for improving transparency and minimizing the risk of corruption. The World Bank’s GFMRAP supported the government’s SPAN program. At the time of GFMRAP appraisal, Indonesia’s PFM relied on manual paper-based systems, which were inefficient and carried a high risk of discretion or corruption. The government banking structure included a fragmented network of accounts spread across commercial banks and the central and regional offices of Bank Indonesia. This structure made it difficult for the government to track funds, manage cash efficiently, and enforce spending limits. In response, SPAN introduced an FMIS, consolidating cash balances into the Treasury Single Account and helping streamline processes and enhance transparency and accountability. SPAN also reduced opportunities for corruption in PFM.
The later shift of the World Bank operations from establishing core PFM systems toward making public spending more efficient and effective was appropriate and relevant. The programmatic Fiscal Reform DPL series (FY16, FY18, and FY19) and the stand-alone Fiscal Reform DPL (FY22) provided much of this support. These DPLs addressed many of the constraints to budget planning and execution and revenue mobilization that the World Bank’s earlier projects and analytical work identified. The Fiscal Reform DPLs supported about 40 prior actions to improve tax policy, tax administration, and spending allocation and effectiveness. Implementation Completion and Results Report Reviews of both the DPL series and the stand-alone DPL suggest that expenditure-oriented reforms were much more relevant to the identified constraints than tax administration or tax policy reforms (figure 3.4). The lower relevance of tax policy actions was partly caused by changes to the programmatic Fiscal Reform DPL’s policy matrix that diluted its planned tax reform agenda.
Figure 3.4. Relevance of Prior Actions Under the Fiscal Reform Development Policy Loans (FY16, FY18, FY19, and FY22)
Figure 3.4. Relevance of Prior Actions Under the Fiscal Reform Development Policy Loans (FY16, FY18, FY19, and FY22)
Sources: World Bank 2023b, 2024b.
Note: Relevance reflects average relevance rating for prior actions implemented within category: 1 = highly unsatisfactory relevance; 6 = highly satisfactory relevance.
The World Bank applied a decade of analytical work and international experience in supporting the public finance reform agenda enabled by the availability of trust funds. There is a clear line of sight between World Bank–supported reforms and investments and earlier diagnostics or Bank Group experience. SPAN’s design, implementation arrangements, and procurement packaging and processes drew on accumulated Bank Group and International Monetary Fund (IMF) experience with implementing similar systems in different countries. The 31 prior actions in the programmatic Fiscal Reform DPL series derived from over a decade of analytical work and technical dialogue, including the World Bank Support for Enhanced Macro and Fiscal Policy Analysis, the Programmatic Macro and Fiscal Policy Engagement, the Fiscal Programmatic ASA (PASA; 2020–24), and two flagship reports—the Public Expenditure Review (World Bank 2020e) and the Commitment to Equity (World Bank 2020d). This work was supported by about $50 million of trust fund finance between FY09 and FY24, used to provide World Bank technical assistance and analytical work related to fiscal management and PFM.5 For example, prior actions of the programmatic Fiscal Reform DPL to consolidate spending units stemmed from a PFM MDTF–funded institutional diagnostic of capital budget execution (FY20) that found that dividing capital expenditure across many government spending units constrained budget planning and execution.
The World Bank used trust fund resources strategically throughout the evaluation period to bolster the overall program in support of public finance reforms. These trust fund resources were four times higher than the World Bank’s $12.5 million budget allocation for ASA and technical assistance (figure 3.5). The World Bank managed a $5 million capacity-building trust fund with the Australian government known as the SEMEFPA program, following up on an earlier collaboration.6 The SEMEFPA program financed the bulk of the World Bank’s capacity-building support to the Ministry of Finance and BKF. There was also a $70 million PFM MDTF initiated in 2009 with original funding of $26 million from the European Union, Switzerland, and the Netherlands. The PFM MDTF supported GFMRAP’s implementation, including ensuring that users understood SPAN and integrating it with other systems. Bilateral development partners replenished the PFM MDTF two more times, which helped deliver analytical and advisory services to the Ministry of Finance in a range of PFM areas, including tax administration, subnational budget efficiency, and digital transformation.
Once the government’s PFM capacity improved, the World Bank shifted its support more decisively to development policy financing in the second half of the evaluation period. The Institutional, Tax Administration, Social and Investment project aimed to strengthen budget execution, improve tax administration, and enhance poverty-alleviating service delivery. The World Bank approved a programmatic Fiscal Reform DPL series in 2016 (FY16, FY18, and FY19) to address public spending challenges, from planning to procurement to subnational fiscal management. The series included mandatory spending increases for priority sectors at the central and subnational levels and actions to improve tax administration and raise tax revenue through tax policy. A stand-alone Fiscal Reform DPL starting in FY22 included additional reforms to improve tax policy and the links between planning and budgeting.
Figure 3.5. World Bank and Trust Fund Finance of Fiscal and Public Financial Management–Related Advisory Services and Analytics and Technical Assistance, FY09–24
Figure 3.5. World Bank and Trust Fund Finance of Fiscal and Public Financial Management–Related Advisory Services and Analytics and Technical Assistance, FY09–24
Source: World Bank Operations Portal data.
The World Bank’s support for climate-related financial management was relevant to both spending and revenue needs. The World Bank’s support for energy subsidy reform helped reduce the subsidies’ large fiscal burden and the demand for fossil fuels. In addition, the World Bank’s support for the Tax Harmonization Law and an emissions trading system helped institutionalize a carbon tax regime, which would expand the tax base and limit greenhouse gas emissions. The World Bank also contributed to Indonesia’s 2022 Public Expenditure and Financial Accountability climate assessment, which identified how PFM systems can support the government’s climate change policies (World Bank 2022a). The assessment described how Indonesia developed policies, strategies, and a regulatory framework for climate-related PFM, but it found that the country’s PFM processes and systems require further strengthening. For example, Indonesia’s National Medium-Term Development Plan (Rencana Pembangunan Jangka Menengah Nasional; RPJMN) identifies the country’s climate change priorities but lacks a detailed cost breakdown of the recurrent and capital spending in the State Revenue and Expenditure Budget. Indeed, the government’s climate-related fiscal planning remains limited despite its climate budget tagging, with the State Revenue and Expenditure Budget omitting carbon tax revenue projections and climate fiscal planning covering only one-third of mitigation financing needs.
The World Bank often revised its modes of support in the face of weak results. For example, the programmatic Fiscal Reform DPL series included a prior action for local governments to adopt the same system for recording and reporting budgets and spending—known as subnational charts of accounts—as is used by the national government. This change aimed to support Indonesia’s decentralization efforts by improving subnational PFM and to help the central government monitor how intragovernmental fiscal transfers were used and improve spending effectiveness. However, districts did not adopt the new system as expected, and the number of districts using it was a poor proxy for the real goal—improving spending quality. In response to these weak outcomes, the World Bank’s later Strengthening Intergovernmental Transfers and Subnational Finance for Service Delivery in Indonesia PforR tied disbursement to a more direct results measure—the share of intergovernmental transfers based on achieved results. Furthermore, the learning from the earlier Local Government and Decentralization Project of managing output-based disbursements in decentralized settings informed the design of the Strengthening Intergovernmental Transfers and Subnational Finance for Service Delivery in Indonesia project.
The World Bank’s heuristic approach to increasingly complex challenges involved learning by doing and recalibrating designs. This complexity arose from evolving into support for improving the effectiveness and efficiency of service delivery, which often requires coordinating among several ministries or agencies. Such support required the World Bank to adapt its approach and project designs based on trial and error. A common point made by World Bank staff was that they understood the objectives for fiscal management and PFM but were less certain about the path to reach those objectives. In this setting, the World Bank appropriately “crawled the design space” to determine the most effective instruments and mechanisms for achieving its goals (Pritchett et al. 2013).
Effectiveness of World Bank Engagement in Reforming Public Finances
The World Bank’s support during the evaluation period was mostly effective in helping Indonesia meet its fiscal and PFM objectives. The World Bank’s early support for building core capacities in fiscal control was effective. Likewise, its capacity building in fiscal policy contributed to reforms that reduced energy subsidies in 2014 and 2015. Bank Group–supported PFM reforms improved Indonesia’s public expenditure management. However, the World Bank’s DRM support did not improve tax revenue.
The World Bank’s unparalleled access to the Ministry of Finance enhanced its effectiveness in supporting the country’s fiscal and PFM reforms. The World Bank’s embedded experts within the BKF through the SEMEFPA program provided unique access to the government’s economic policy-making. Additionally, the World Bank’s strong relationship with Indonesia’s former minister of finance, owing to her earlier role as managing director at the World Bank, contributed to strong government demand for the World Bank’s services, particularly in fiscal policy support. According to interviews with government officials, the ministry viewed the World Bank as its most trusted partner. This relationship contributed to the World Bank’s sustained lending, influence, and dialogue with the government.
The World Bank’s support effectively strengthened the government’s fiscal policy-making capacity. The World Bank embedded World Bank consultants in BKF to provide technical assistance through the SEMEFPA program. This support increased BKF’s capacity for policy analysis and formulation, as demonstrated by the government’s increased use of the GDP and inflation targeting models, BKF’s management of fuel subsidy reform models originally built by the World Bank, and BKF’s growing analytical contributions to the World Bank’s Indonesia Economic Quarterly. The World Bank’s contribution to improved macrofiscal policy-making is less clear, but the government’s macroeconomic achievements are undeniable. During the evaluation period, Indonesia successfully maintained its fiscal deficit cap of 3 percent, except in 2020 and 2021 during the COVID-19 pandemic, and the country’s sovereign credit rating improved from a speculative grade of BB+ in 2013 to an investment grade of BBB by 2022. The government’s statistical capacity has also improved, with the country’s statistical capacity indicator rising from 68.9 in 2016 to 81.4 in 2023.7
GFMRAP contributed to the Treasury Single Account and SPAN, which strengthened PFM through greater fiscal controls. GFMRAP achieved its intended results, including fewer informal payments; faster budget execution and reconciliation; fewer transaction recording discrepancies; and greater savings by directly depositing salaries, consolidating cash balances into the Treasury Single Account, and closing miscellaneous accounts. SPAN also contributed to fiscal controls and related longer-term outcomes, such as greater budget execution control and predictability, increased budget transparency, and improved accounting and reporting processes. The 2011 and 2017 Public Expenditure and Financial Accountability assessments highlighted improvements in these areas (figure 3.6).
Figure 3.6. Improvement in Indonesia’s Public Expenditure and Financial Accountability Assessment Results, 2011 and 2017
Figure 3.6. Improvement in Indonesia’s Public Expenditure and Financial Accountability Assessment Results, 2011 and 2017
Source: World Bank 2017a.
Note: PI = performance indicator.
However, the World Bank’s early IPF faced procurement challenges. They were related to weak government capacity in planning for the procurement of complex information and communication technology system and unfamiliarity with the World Bank procurement rules. The SPAN contract’s procurement under GFMRAP was planned for January 2006 but was not awarded until June 2009—three years later than expected. The delay was caused by the project implementation unit deeming all but one bidder ineligible according to World Bank procurement rules.8 In addition, the new leadership of the Ministry of Finance was less familiar with the PFM reform agenda, which slowed decision-making. The impasse was resolved once the original minister of finance, who embraced the reforms at the outset, returned (World Bank 2021b). Similarly, the government canceled the PINTAR project after six years because of the project implementation unit’s hesitancy in making high-cost procurement decisions to award the core tax information and communication technology system to the preferred bidder—despite the World Bank’s no-objection (World Bank 2017b). The ministry sought a second opinion from the federal audit agency, Badan Pengawasan Keuangan dan Pembangunan, which recommended canceling the loan. According to the government officials consulted by IEG, the World Bank might have avoided these outcomes by breaking up large procurements into smaller parts, despite potential efficiency losses (World Bank 2017b).
The World Bank supported Indonesia’s 2014–15 energy subsidy reforms, which were effective in freeing up fiscal space for other spending priorities (figure 3.7). The World Bank’s long-standing support to BKF improved data, tools, and technical capabilities for exploring reform options, which enabled the government to act quickly when opportunities arose to advance energy reforms. At the same time, the World Bank contributed to improving the design, targeting, and implementation of Indonesia’s social assistance schemes, which helped mitigate the reforms’ impact on low-income households. Moreover, the World Bank integrated disparate government data sets into a unified database, assisted with targeting beneficiaries, and supported pilots for unconditional and conditional cash transfers—efforts that increased the public’s acceptance of the subsidy reform agenda (World Bank 2021a). The reforms reduced energy subsidy costs by about 2 GDP percentage points, from 2.5 percent in 2013 to 0.4 percent in 2015.9 The increased fiscal space allowed the government to spend more on Indonesia’s three development priority areas of health, infrastructure, and social assistance. These allocations were included as prior actions in the 2016–19 programmatic Fiscal Reform DPL series.
Figure 3.7. World Bank Support Toward Fuel Subsidy Reform and Social Assistance
Figure 3.7. World Bank Support Toward Fuel Subsidy Reform and Social Assistance
Sources: Ihsan et al. 2024; World Bank 2021a.
Note: DPL = development policy loan; INSTANSI = Institutional, Tax Administration, Social and Investment; PforR = Program-for-Results; TA = technical assistance. a. For example, World Bank 2012a, 2012b, 2012c, 2012e, 2012f, 2012g, 2012h, 2012i, 2012j.b. Support may have begun earlier than 2010.
However, the World Bank could have better safeguarded the fuel subsidy reform’s sustainability by including gradual price adjustments in DPL prior actions. In 2014–15, the government introduced a mechanism to automatically adjust fuel prices based on global oil prices. It relied on the mechanism when prices were falling in 2015–16 but stopped using it after 2017 when prices went back up—likely to avoid consumer backlash from raising fuel prices. As a result, fuel subsidies as a share of the GDP increased from 0.4 percent immediately after the reform to 1.4 percent by 2018. Indonesia’s fuel subsidies reached 2.3 percent in 2022 as oil prices continued to rise after COVID-19, nearly reaching prereform highs. Subsidies have since fallen back to 1.4 percent of the GDP. The World Bank missed an opportunity to preserve reform sustainability by making the price adjustment mechanism part of the subsequent DPL series’ prior actions (Ihsan et al. 2024).
The World Bank’s support for DRM has not led to a noticeable increase in the tax revenue–to–GDP ratio, despite some success at the end of the evaluation period that improves the prospect for raising tax revenues. The FY13–14 Institutional, Tax Administration, Social and Investment DPL series at the beginning of the evaluation period supported a sixfold increase in the number of registered taxpayers, from approximately 10 million in 2008 to 66 million in 2021. Otherwise, early World Bank support for tax reforms was limited and has not led to a noticeable increase in the tax revenue–to–GDP ratio. In fact, early in the evaluation period, Indonesia’s tax revenue mobilization declined and diverged from the range of other major Association of Southeast Asian Nations (ASEAN) economies (figure 3.8).
Figure 3.8. Tax Revenue–to–GDP Ratio for Major Association of Southeast Asian Nations Economies, 2012–22
Figure 3.8. Tax Revenue–to–GDP Ratio for Major Association of Southeast Asian Nations Economies, 2012–22
Sources: IMF 2013, 2024b.
The limited effectiveness in the earlier evaluation period was caused in part by the government’s decision to drop PINTAR, the DRM project that dealt with the procurement of a core information technology system due to deep political sensitivities. In September 2012, the Ministry of Finance canceled the procurement of the core tax system. PINTAR’s goal of integrating all tax administration processes would have improved tax revenue by reducing manual errors, ensuring real-time reporting, and improving compliance. However, PINTAR’s cancellation left a key reform for increasing tax compliance incomplete.10 The World Bank would undertake various tax reforms through the Fiscal Reform DPLs starting in 2016, but without PINTAR’s core tax system, the relevance of these efforts was reduced.
The effectiveness of World Bank support to DRM through the Fiscal Reform DPL series (FY16, FY18, and FY19) was limited. The Fiscal Reform DPL series backloaded ambitious but politically sensitive tax reforms that were subsequently dropped. For example, DPL 3 (FY19) originally envisioned submitting draft revisions of the fiscal decentralization law, the VAT law, and the income tax law to parliament for approval. However, submitting these drafts would have triggered public and political debate over potentially unpopular measures—such as raising taxes or shifting revenue authority—which the government chose to avoid during an election period. As a result, these potentially unpopular actions were dropped from the program.
The World Bank revived the tax reform agenda under a stand-alone Fiscal Reform DPL (FY22), which has since achieved its intended results. The government passed the Tax Harmonization Law and the first Law on Intergovernmental Finance in late 2021. This DPL included more ambitious tax reforms, which increased the VAT rate and added a new tax bracket for high-income earners.11 In addition, the latest available data show that several FY21–25 CPF revenue mobilization objectives have been met or are on track to be achieved—and while the current tax-to-GDP ratio is below that of other ASEAN economies (figure 3.8), these results are promising signs for future tax revenues.
Overall, the World Bank demonstrated an ability to recover from policy reversals and reestablish relevance when government commitment returned. Interviews with both World Bank staff and government stakeholders support this point. For example, government interest in energy subsidy reform waned in 2017 as oil prices—and the political costs of reform—began to rise. Despite this shift, the World Bank continued to provide technical advice and analytical support to ensure the reform’s continued implementation, including through a 2024 energy subsidy reform report. Tax reform has faced similar political challenges, with several planned VAT increases delayed, but the World Bank still facilitated a rise in the VAT rate from 10 percent to 11 percent. Reform momentum in these areas has often been “two steps forward, one step back,” but the World Bank usually managed to maintain a positive overall trajectory.
- Public spending on social assistance programs averaged only 0.55 percent of the GDP in 2014, compared with between 1 percent and 2 percent among Indonesia’s regional peers (World Bank 2017c).
- Starting in 2004, the World Bank would also support technical assistance and capacity building for debt management, but because of the majority of activities coming to a close at the start of the evaluation period, debt management–related support is not covered in this chapter.
- IEG staff estimates from commitment amount data in the World Bank Operations Portal.
- The Local Government and Decentralization Project had a positive effect on district budget management and accountability, as measured by the State Audit Board (BPK), where participating subnational governments were found to be 10 percent less likely to receive a disclaimer, 1.1 percent less likely to obtain an adverse opinion, and 9.2 percent more likely to receive an unqualified audit opinion.
- The financing from both trust funds amounted to $68 million, but approximately $18 million was disbursed before the evaluation period.
- The World Bank and the Australian government had collaborated earlier to develop a program of capacity-building support to macroeconomic and fiscal policy analysis under a 2009 Support for Enhanced Analysis and Monitoring of the Indonesian Economy, amounting to about $2 million.
- The World Bank’s Statistical Capacity Index measures capacity across three dimensions (availability, collection, and practice) and reflects a country’s ability to collect, analyze, and disseminate high-quality data.
- Of the 25 firms that purchased the bid documents, only four bids were submitted under the first stage of the SPAN procurement. After careful evaluation, the procurement committee determined that only one bidder was qualified to advance to the second stage of the procurement process, while the World Bank disagreed with the committee’s decision to disqualify one of the bidders.
- By 2013, the Indonesian government subsidized petroleum products with Rp 200 trillion ($18 billion) and electricity with Rp 100 trillion ($9 billion). These subsidies represented 25 percent of total government spending (IISD 2014).
- It would not be until 2025 that the ministry’s Directorate General of Taxes would roll out Coretax, the integrated tax information and communication technology system.
- The introduction of this new tax bracket for high-income earners increased the share of personal income tax collected from this group from 15.9 percent in 2020 to 18.8 percent in 2023. Additionally, the increase of the VAT rate from 10 percent to 11 percent resulted in a revenue gain from about 0.3 percent of the GDP in 2022 to 0.5 percent in 2023 (World Bank 2024b).