ADB's $1 Billion Loans to Support Fiscal Reform, Investment-Led Growth in Indonesia

The loans will help strengthen fiscal and public expenditure reform and promote quality investment in Indonesia, bolstering the country’s efforts to reduce poverty and income inequality.

JAKARTA, INDONESIA (8 June 2018) — The Asian Development Bank’s (ADB) Board of Directors has approved two policy-based loans—at $500 million each—to help Indonesia strengthen fiscal and public expenditure reform and promote quality investment, bolstering the country’s efforts to reduce poverty and income inequality.

The first loan will support the Fiscal and Public Expenditure Management Program (FPEMP), which reflects ADB’s systematic approach in supporting Indonesia’s fiscal and public expenditure reform by helping the government improve budget preparation, transparency, and monitoring.

“The program has enabled the government to increase targeted spending and improve the quality of spending in priority areas such as health and education in line with its implementation of the UN’s Sustainable Development Goals (SDGs),” said Senior Financial Sector Specialist for ADB’s Southeast Asia Department Mr. Sani Ismail. “Strengthening public expenditure management, particularly at the subnational level, will improve the delivery of public services.”

ADB has been supporting public financial management and expenditure reforms in Indonesia since 2001. Approved in 2016, the first FPEMP program helped Indonesia map its expenditure in line with its National Medium-Term Development Plan and the SDGs. Building on that, the second program will help synchronize the planning of national priorities with the entire budget cycle and expand social assistance programs. It also complements the government’s medium-term revenue strategy.

The government’s reforms in public expenditure management and budget transparency have been recognized internationally, with Indonesia ranking second in Southeast Asia in the Open Budget Index of 2017.

The second newly approved ADB loan will fund the Stepping up Investment for Growth Acceleration Program (SIGAP), which will help the government boost investment-led growth by making the country’s regulatory environment friendlier to businesses and investors.

“The program will help the government boost efficient public and private investment, while also addressing investment constraints at the subnational level,” said Public Management Specialist for ADB’s Southeast Asia Department Mr. Robert Boothe. “The reforms include consolidating and expediting business licensing processes, institutionalizing good regulatory practices, and introducing various tools and systems to help the government implement its public investment program.”

For nearly two decades, ADB has worked with the Government of Indonesia to promote infrastructure development and investment competitiveness, because a high-cost business environment and other investment constraints have contributed to a slowdown in Indonesia’s economic growth in recent years.

The new loan is the third—and final—installment for the SIGAP program, which began in 2014 with a loan to address specific constraints to both public and private investment. ADB approved another loan in 2016 to support a stronger framework for public-private partnerships, as well as the implementation of public procurement reforms to promote efficiency and transparency.

Government reform efforts to improve the business climate and accelerate investment are beginning to bear fruit. By the end of 2017, foreign direct investments reached a 7-year high, with growth in investments picking up by almost 2% from 2016 levels. Reform efforts have also improved Indonesia’s global competitiveness standings. Out of 189 countries in the the World Bank’s Ease of Doing Business rankings, Indonesia climbed from 114th in 2015 to 72nd in 2018.

Each of the $500 million loan will be complemented by the equivalent of €200 million ($239 million) in parallel financing from the German development cooperation through KfW.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region. In 2017, ADB operations totaled $32.2 billion, including $11.9 billion in cofinancing.

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