Inclusive Growth an

Indonesian
Perspective

Chatib Basri

University of Indonesia
 Economic growth have positive 2
impact on poverty reduction

Kanbur, Rhee, Zhuang, 2014

 3

But inequality is rising

Source: Jain-Chandra et.all (2016)

 4

Indonesia: Growth and

Poverty reduction
 Driving Forces behind rising 5

inequality
 Technology (labour saving), increasing skill
premium (inequality in education, have an
impact on rate of return) vs unskilled labour

 Rigidity in the labour market

 Financial market liberalization

 Commodity price; Dutch disease

 Inequality in access: education, health, financial

services, infrastructure

 Poor quality of infrastructure

 Demography: aging population

 Corruption and high cost economy

 Policy response to promote growth and 6
addressing inequality
 Promote more employment friendly economic
growth

 Improve labour law

 Improve quality of human capital

 Effective fiscal policy: quality of spending

 Focus more on education, health, infrastructure:

Case of case transfer, CCT and fuel price hike

 Mobilization of tax revenue

 Financial inclusion: digital technology

 Employment friendly policy

 Economic deregulation

 Inflation: opening up import for staple food

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Better quality of spending

Towards inclusive growth Indonesia Economic Quarterly

Figure A.25: Higher capital and social spending Figure A.26: Disbursements improved overall,
drove overall spending growth in 2017 especially for capital and social spending…
(annual actual expenditure growth yoy, percent) (actual expenditure as percent of revised budget)
2015 2016 2017 2015 2016 2017
60
46.2
40 32.1 120 109
17.9 96 92 98 97 94 95
15.4 100 91 93 88 113
86 90 87
20 7.9 10.9
6.5 78
1.7 2.5
-0.8 -4.6 80 90 89 92 90
0 3.2 8.5 11.3 81
60 75
-6.3
-20
40
-21.3
-40 20

-60 -48.9 -52.6

0

Source: Ministry of Finance, World Bank staff calculations

Note: Some social expenditures were reclassified into material spending in 2015. 2015-2016 are actual audited figures. 2017 are preliminary
figures as of February 9, 2018.

Disbursements of By the end of 2017, IDR 1,986 trillion or 93.1 percent of the total government
capital and social expenditure in the 2017 Revised Budget was disbursed, the highest in 3 years (Figure
 of 2018 tax revenues, and revenues from public ser
Yet, tax ratioorto GDP
BLUs) also grew after experiencing8nom

remains
Figure A.23:low andratiosteadily
Tax-to-GDP excluding tax Figure A.24: V
decline
collections from TA program picked up in 2017
(change yoy, percent)
strong 2017 co
(contributions to g
15.5 Other
16 15.1 14.7 Excises
Income
14 Total Revenues 13.1 Total re
12.5 12.2
11.4 20
12 11.3 10.9 11.7
10.8 12.1
Tax Revenues 10.4
10 9.9
9.8 10 7.5
9.5
8

6 0
4.1 3.7 3.8
4
Non Tax Revenues 2.2 2.1 2.3 -10
2

0 -20
2012 2013 2014 2015 2016 2017 2013
Source: Ministry of Finance; World Bank staff calculations.
 9
Budget was spent on
regressive energy subsidies
Towards inclusive growth Indonesia Economic Quarterly

Figure B.8: Up until recently, about a fifth of the Figure B.9: …rather than on progressive direct
budget was spent on regressive energy subsidies… transfers for social assistance
(share of benefits received by consumption decile) (share of benefits received by consumption decile)
35 Electricity LPG + kerosene Fuel 50 PKH BLSM
45
30
40
25 35
30
20
25
15 20
15
10
10
5 5
0 0

Source: Susenas 2015, World Bank staff calculations Source: Susenas 2015, World Bank staff calculations

Figure B.10: Indonesia’s level of public expenditure is Figure B.11: …primarily due to its low revenue to GDP
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The case of fuel subsidies

and cash transfer
 Fuel subsidy is a regressive subsidy

 Cash Transfer and conditional cash transfer

 Targeting the poor and let the poor to identify

themselves
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Thank you