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Indonesia – Institutional Diagnostic of Low and Slow Central Government Capital Budget Execution

28 June 2020
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The “Institutional Diagnostic of Low and Slow Central Government Capital Budget Execution” focuses on identifying key constraints hindering the pace and level of capital expenditure budget execution in Indonesia. It highlights systemic challenges within the public financial management (PFM) framework and proposes actionable recommendations to improve budget implementation efficiency and infrastructure investment outcomes.


Key Findings:

  1. Low and Slow Capital Expenditure:
    • In 2019, only 82% of the allocated IDR 211 trillion budget was realized, with 49% disbursed in Q4, indicating delays.
    • Bunching of expenditures in December poses risks of hasty and inefficient spending.
  2. Major Challenges:
    • Procurement Delays: Late initiation and underuse of multi-year contracts slow project implementation.
    • Land Acquisition Issues: Delays adversely impact the pace of budget realization.
    • Budget Planning: Short timelines for preparation and documentation hinder execution.
    • Vendor Payments: Irregular and delayed payments cause inefficiencies.
    • Coordination and Staffing: Poor coordination between spending units and headquarters, along with inadequate staff incentives, affect performance.
  3. Behavioral and Systemic Issues:
    • Inconsistent interpretation of regulations across ministries.
    • Low staff motivation and honorariums linked to delayed outputs.

Recommendations:

  1. Procurement:
    • Adopt multi-year contracts and ensure timely land acquisition processes.
    • Encourage early tender announcements and enforce readiness criteria.
  2. Budget Management:
    • Streamline spending units and introduce performance-based incentives.
    • Ensure data interoperability between planning and budgeting systems.
  3. Implementation and Financial Management:
    • Establish e-invoice and e-reporting systems for transparency.
    • Set explicit contractual payment timelines with penalties for delays.
  4. Regulatory Reforms:
    • Improve the consistency of regulations and provide capacity-building for internal auditors.
    • Modernize PFM tools, including a robust SAKTI system rollout.

Note on Preparation

This diagnostic study was led by Arun Arya, Senior Public Sector Specialist and Task Team Leader of Indonesia’s Public Financial Management Program, as part of the World Bank’s initiative. It was conducted with extensive consultations and supported by the Ministry of Finance’s Directorate General of Treasury and other stakeholders.