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State projects accelerated
State contract-tendering and budget disbursements could begin earlier than usual this year as a result of President Joko âJokowiâ Widodo instructing ministries and government institutions to speed up government spending to boost economic growth
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State contract-tendering and budget disbursements could begin earlier than usual this year as a result of President Joko 'Jokowi' Widodo instructing ministries and government institutions to speed up government spending to boost economic growth.
'If the tender process [for government projects] normally begins around June, July and August, then this year it has been forwarded to March,' Coordinating Economic Minister Sofyan Djalil said Wednesday after attending a plenary Cabinet meeting at the Presidential Palace.
The minister stated that the acceleration of the state tender process would be 'the new breakthrough' implemented by the government to boost a low state budget realization rate among ministries, which economists have blamed as the main factor dragging down Indonesia's growth in previous years.
By holding the tender process early, ministries and government institutions could achieve better planning for their projects, with their funds consequently disbursed more efficiently and productively, Sofyan explained.
Finance Minister Bambang Brodjonegoro said he had informed all ministries that for state projects targeted to be completed this year, all their Budget Allocation List (DIPA) and the projects' tendering must be finalized by the end of this month.
He encouraged the ministries to utilize the provided online facility known as e-budgeting for the process of disbursing their funds. 'We want to make it easier for them [the ministries] to process their funds without having to go through too many administrative issues,' Bambang told reporters.
The Jokowi administration has ample fiscal space and a lot of money to spend on infrastructure projects this year, thanks to declining oil prices that have reduced the costly fuel subsidy bill and the subsidy overhaul that has wiped almost Rp 200 trillion from the state budget, allowing it to be allocated for more productive uses.
In the revised 2015 State Budget, around Rp 290 trillion has been earmarked for capital expenditure (capex) spending, a fund allocation that includes ministerial investments and growth-generating infrastructure projects.
While the budget's structure has won praise from economists, questions have nonetheless arisen on whether the capex allocation, which is significantly higher than the Rp 190 trillion earmarked last year, could be well spent by Indonesian ministries, which have had trouble disbursing the state budget effectively.
Capex spending in particular, was in the spotlight as it has among the lowest budget realization rates of all spending types. In 2014, the capex realization rate stood at only 84 percent, lower than the overall budget realization rate of 94 percent, Finance Ministry data show.
Government spending, which accounts for 10 percent of Indonesia's gross domestic product (GDP), grew only 2 percent throughout last year, compared with a 5.1 percent growth of household consumption and a 4.1 percent growth of investment.
The country's economic growth slowed to 5 percent last year, the lowest level in five years, with sluggish state budget realization contributing to the slowdown.
Nevertheless, economists say that the Indonesian government is already moving in the right direction in its attempt to repair issues related to the budget-disbursement process and the slowdown in government spending is already seen to be bottoming out.
'Anecdotally, government procurements have actually become more efficient over the past five years,' commented Helmi Arman, the chief economist of Citibank in Indonesia.
'Online procurement is now widely implemented across government ministries,' he continued. 'The increased transparency has led to fewer cases of objections, which had once been a drag on the auction processes.'
ANZ Bank economist Daniel Wilson noted that regulations on mandatory spending, the looming Presidential Regulation on a comprehensive land reform act and some public-private partnership (PPP) projects, as well as improved technical guidance, would increase budget implementation rates in the future.
'The perennial underspending by ministries is being addressed,' he said. 'We were left with the impression that the three arms of economic policy ' monetary, fiscal and structural reform ' are entering a more coordinated phase that should build the base for a stronger and more durable medium-term expansion.'
