EUR 100 Million loan to further strengthen the effectiveness of public finances in Indonesia [fr]
Jakarta, 14 January 2020 – Luky Alfirman Indonesian Director general of Budget and Emmanuel Baudran, AFD Director in Indonesia signed a loan agreement of EUR 100 Million today with Olivier Chambard, the French Ambassador for Indonesia and Timor Leste as a part of a programmatic Development Policy Loan series in support of the fiscal reforms conducted by the Government of Indonesia.
The President Joko Widodo identified social inequalities and infrastructure gap as the two main obstacles to the country’s development. The National Medium-term development strategy for the period 2015-2019 (RPJMN 2015 – 2019) was elaborated to improve the quality of life of the population and to reduce inequalities. The implementation of this strategy requires significant resources (USD 460 billion for the infrastructure only).
To tackle the limited tax base, economic distortions and a complex administration system and tax structures, the Government of Indonesia has launched in 2016 an ambitious reform in order to increase the domestic revenue.
AFD has been supporting the Government of Indonesia with a series of Development policy Loan, co-financed and aligned with the World Bank programmatic series of Indonesia Fiscal reform Development Policy loan aiming at: (i) Improving quality of spending (ii) strengthening revenue administration (iii) enhancing tax policy.
Previous phases have already achieved significant outcomes. The Indonesian government has reduced social inequalities by increasing the shares of the central government budget allocated to infrastructure, social assistance, and health sectors, compared to pre-energy subsidy reform years (2012 – 2014). The program has also helped the government to increase its fiscal transparency by publishing its first tax expenditure report and to improve its climate resilience by strengthening the monitoring, planning, and budgeting of climate finance through the establishment of a climate budget tagging mechanism.
“We are proud to support the Government of Indonesia‘s fiscal reforms, which have led to sustained improvements of domestic resource mobilization since 2016 and a better financing of priority sectors such as social assistance, health, and infrastructures!” said Emmanuel Baudran, AFD Director in Indonesia.
In addition, AFD mobilizes a specific grant for Technical Assistance program aiming at strengthening the capacity of the Indonesian Ministry of Finance and promoting peer to peer exchanges with the French tax administrations. The program will be implemented by Expertise France in 2020 - 21, to deal with key issues: taxation of the digital economy, climate fiscal policy, development of VAT and indirect taxation and international taxation policies.
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