The PFM MDTF III Support to Government of Indonesia

closed

Indonesia has made commendable progress in many aspects of public financial management (PFM) in the last decade. While the trajectory of reforms seems well set with a high level of senior commitment, there is broad acknowledgement that there is more work to be done. With this in view, the Ministry of Finance has recently prepared a strategic Roadmap for PFM Reform for the next 5 years, prepared with support from the PFM MDTF. The proposed MDTF operation is broadly consistent with the Roadmap as well as Ministry of Finance's Medium Term Strategy Note. This project is part of the PFM MDTF Phase III and will provide support to the Government's medium-term public finance management reform agenda. This program follows on from the successful completion of the preceding phases 1 and 2 of the PFM MDTF, which were administered by the World Bank on behalf of participating donors. In this phase 3 the proposed RETF grant amounting to US$ 3.2 million supplements and complements interventions to be financed through a separate BETF grant, which is being structured into the same components. The project will address issues across a broad range of public financial management areas that emerge from on-going PFM reform dialog in Indonesia and the ones that are reflected in the Government’s PFM Reform Roadmap. It provides continued support to Government of Indonesia (GoI) through improved accountability, collection, allocation, usage and transparency of public resources, with a focus on supporting reforms at the central and sub-national level. The MDTF support in this phase is being channeled through a combination of BETF and RETF financing, with the latter representing about 21% of the total funding. The proposed activities under this task will address issues across a broad range of public financial management areas that emerge from on-going PFM reform dialog in Indonesia, including revenue policy and management and expenditure policy and management at both central and subnational government facilitated through use of digital technology.The proposed project complements the Bank’s analytical and advisory services and support the government in following areas: improving revenue policy and administration, improving the expenditure policy and management, improving the subnational public resource management, and facilitating the digital transformation vision of Ministry of Finance. These four components build upon the progress made through implementation of on-going reforms over the last decade, including those supported by the PFM MDTF phase I and II, as well as other donors and Government’s own resources. The project is well-aligned with World Bank Group’s Country Partnership Framework (CPF) for FY21-FY25. It will contribute to the implementation of its Supporting Beam of “Collecting more; spending and governing better” with objectives of improving policies and administration to support higher revenue collections and fiscal/debt sustainability and improve policies and institutions to increase the efficiency, equity and effectiveness of public spending. The PDO of this program is “to inform government policy and regulations and improve capacity of government for better quality of revenue and expenditure policy and management at the central and sub-national levels, including through adoption of digital technology”. To the extent that some public finance management functions are performed by other public institutions than the MOF, the program will support coordination with these institutions that share a common reform agenda so as to broaden the reform footprint at both central and subnational levels. The responsibility for implementation will lie over a multiple Project Implementing Units (PIUs) including DG Budget, DG Tax, DG Treasury, DG Fiscal Balance, PSSU and MOF Data Center (PUSINTEK) within the Ministry of Finance. There will be PIUs outside the Ministry of Finance as well, including under the Deputy for Development Funding of Bappenas, DG Regional Finance of Ministry of Home Affairs, and the National Internal Audit Agency (BPKP).The Project Support and Services Unit (PSSU) under the office of Secretary General, Ministry of Finance (MOF), will be responsible for coordinating the activities executed by all government offices and agencies receiving funds from this grant, including PIUs. The project beneficiaries will include, but not be limited to, Government of Indonesia, which will directly benefit from the implementation of all activities. Beneficiaries will also include Deputy of Development Funding of Bappenas, Internal Auditors under BPKP and Association of Indonesia Internal Auditors (AAIPI), as well as the officials of DG Regional Finance of Ministry of Home Affairs (MOHA) and local governments. In addition to this, more government officials from line ministries will directly or indirectly benefit from the project when it will involve targeted sectors such as health, education and infrastructures. The people of Indonesia will benefit from improved public financial management leading to improved realization of planned development outcomes.