Jakarta. Indonesia secured a $300 million loan from the World Bank to help improve the government's spending quality, revenue administration and taxation policy, the multinational lender said in a statement on Friday (17/11).
The loan, which was approved by the World Bank's board of executive directors on Nov. 1, forms part of the Washington-based lender's support for Indonesia's fiscal reforms through a partnership framework focused on government priorities that have transformational impact.
"Building on the substantial progress to date, further fiscal reforms are needed so Indonesia can meet its aspirations," said Rodrigo A. Chaves, World Bank country director for Indonesia.
"Effective design and implementation of taxation and spending policies can directly and indirectly improve the lives of poor and vulnerable families by making tax systems become more efficient and fair and by better resourcing the government to provide critical services, such as health, social assistance and infrastructure," he added.
The loan, prepared in collaboration with the French government's Agence Française de Développement, is also supported by other World Bank programs related to public financial management.
The World Bank noted that Indonesia has one of the lowest revenue-to-gross domestic product ratios in East Asia and the Pacific.
The multilateral lender said this revenue gap is caused by persistently low compliance rates and also partly due to suboptimal tax-policy design, which has led to a limited tax base and difficulties in its administration.
"Without a major reform in revenue collection, along with the continued moderation of commodity prices, Indonesia's revenue-to-GDP ratio may remain at a lower level. This would severely constrain the fiscal space for spending on development priorities," said Hans Anand Beck, World Bank lead economist and team leader for the operation.
The loan is the second of three aimed at supporting Indonesia's fiscal reforms. The first has already been allocated to support reforms that included larger allocations for health-care and social-assistance programs, and reducing value-added tax exemptions on some consumer goods to assist poverty reduction efforts.