On 14 October 2020, the European Union (EU) and the World Bank signed an Administrative Agreement for the ‘Modernizing the Management of Public Resources in Indonesia’ Multi Donor Trust Fund to support Government of Indonesia’s Public Finance Management (PFM) Reforms agenda. The Administration Agreement was signed by the EU Ambassador to Indonesia, Mr Vincent Piket, and the World Bank’s Country Director for Indonesia, Ms Satu Kahkonen. Officials of other donors (Swiss and Canada), the World Bank, and the Government of Indonesia were also present on the occasion.
EU has supported Indonesia’s Public Financial Management reforms for over a decade, channelled through the Public Finance Management Trust Fund (PFM MDTF Phase I and II), managed by the World Bank, with contributions from Switzerland, Canada and the EU.
In a third phase, set to start in 2020, the EU will contribute € 3 million (IDR 53 billion) to support the Government of Indonesia in modernizing the management of its public resources. The project aims to improve:
“We are looking forward to working together with our partners and the Ministry of Finance in the next phase of this project to support Public Finance Management Governance in Indonesia. The project will further strengthen the capacity of the government to improve the domestic revenue collection and to spend it better, providing high quality public services in an inclusive and sustainable way,” said the EU Ambassador to Indonesia, Mr Vincent Piket.
“This is particularly important in times of economic and social crisis, such as caused by the current coronavirus pandemic. I am proud that our programme provided practical support to Government of Indonesia in these trying times and am convinced that our future cooperation will enhance these benefits,” added Ambassador Piket.
On this occasion, the Secretary General, Ministry of Finance, Mr Hadiyanto, said, “We appreciate the long-standing support of the European Union as the largest donor to our PFM reform program in Indonesia in the past. The program has significantly contributed to the achievements made by the government to date, in particular I would like to mention the strengthening of tax compliance, improving performance orientation of the budget, the enhancement of budget transparency and efficiency through digitalization, performance-based transfers to local governments, and gender sensitive budgets. We are looking forward to the continuation of the programme which is well aligned with the Indonesia’s recently announced reform priorities.”
World Bank’s Country Director for Indonesia, Ms Satu Kahkonen, said: “I would like to thank our partner, the European Union, for their continued partnership, technical advice, and funding for the implementation of modernizing the management of public resources in Indonesia. The European Union has played a very important role in this key reform agenda for Indonesia, as well as in the success of the World Bank’s support to the Indonesian government in tackling some of the major Public Financial Management, or PFM challenges. I would also like to thank the EU for being the largest donor of the PFM MDTF Program in Phase I and Phase II”.
Recently, the second phase of the programme on Public Finance Management supported the government in the development of a Digital Dashboard to track allocation, realization and outputs delivered by different Line Ministries in combating the coronavirus. The Multi Donor Trust Fund also supported the development of a mobile application that allows citizens to access data on budget allocation, expenditure and output on their mobile phones.
The EU’s previous support to the project has contributed to an increased tax base, i.e. the number of registered individual and business taxpayers, as well as the flow of quality third-party data to enforce tax compliance. More taxpayers now file their annual income tax returns using e-filing and a Government Financial Management Information System and Treasury Single Account were established. Further work is being done to speed up digital transformation and to develop an enterprise architecture blueprint for the Ministry of Finance. In addition, the enforcement of the budget according to the planning and independent audits by the Supreme Audit Institution, performance based transfers to subnational governments, as well as the capacity of the Internal Audit Agency have improved.