🔹 Summary
This report examines Indonesia’s landmark reform of its planning and budgeting system, introduced from FY2021, which shifts the core principle from “Money Follows Functions” to “Money Follows Programs.” The reform represents a fundamental transition from an administratively driven budgeting structure—where allocations were tied to organizational units—to a results-oriented framework that aligns resources with national development priorities and measurable outcomes.
At the heart of the redesign is a significant simplification and restructuring of programs, reducing fragmentation and enabling cross-ministerial collaboration. Programs are now conceived as policy instruments aligned with the President’s development agenda, rather than as extensions of bureaucratic hierarchies. Activities and outputs have also been redefined to reflect “real work,” with a new standardized classification system (KRO/RO) introduced to improve clarity, comparability, and performance measurement.
The reform seeks to strengthen performance-based budgeting, enhance coordination across ministries and levels of government, and improve the transparency and accountability of public spending. By linking planning, budgeting, implementation, and evaluation more closely, it aims to ensure that public expenditure translates more effectively into development outcomes.
At the same time, the report highlights important implementation challenges. These include the need for strong coordination between key institutions such as the Ministry of Finance and Bappenas, risks of over-centralization in program design, the continued relevance of thematic budget tagging, and the importance of maintaining a balance between top-down direction and bottom-up inputs from line ministries. The report also cautions against overly rapid implementation, emphasizing the need for institutional capacity and robust quality control mechanisms.
Overall, the redesign represents a bold and necessary step toward modernizing Indonesia’s public financial management system. Its success, however, will depend not only on sound design but also on disciplined execution, institutional alignment, and sustained political and administrative commitment.
🔹 Preparation of the Report
This report was prepared by Hari Purnomo (Senior Public Sector Specialist, EEAG1), as part of the World Bank team led by Arun Arya (Senior Public Sector Specialist, EEAG1/Task Team Leader), under the World Bank’s Public Financial Management (PFM) operation in Indonesia.