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Managing Resources to Build Back and Create a Better Future for Nias
Nias Public Expenditure Analysis
World Bank Office Jakarta
Jakarta, August, 2007
Key Messages
Nias and Nias Selatan have experienced a significant increase in financial resources from reconstruction and decentralization. These resources provide opportunity to address poverty and human development issues in the region;
Despite having two of the highest poverty rates and lowest social outcomes, Nias and Nias Selatan continue to receive among the lowest per capita revenues of all districts in North Sumatra;
Public service delivery in the Island has been lagging behind the province and national averages. The two districts have the highest poverty rates and have some of the lowest education, health, and infrastructure outcomes in North Sumatra;
Key Messages
Spending patterns have improved in some respect but there remain areas of serious concern;
Spending on education absorbs the largest share of expenditures; Sectoral spending on government apparatus is increasing, while
infrastructure spending has been decreasing; Spending toward routine expenditure has been increasing.
Local government capacity in budget planning and implementation needs substantial upgrading. The increase in responsibilities and fiscal resources needs a better capacity from local government to effectively and efficiently manage its resources.
Local Govenrments’ Revenues
The island received substantial increase of revenue by almost four times after decentralization and reconstruction
0200,000400,000600,000800,000
1,000,0001,200,0001,400,0001,600,0001,800,0002,000,000
1999 2002 2006
Mill
ion
rupi
ah
Deconcentrated Nias & Nias Selatan LG revenue Reconstruction
BRR
Donors & NGOs
The increase in local government’s revenue is mainly driven by DAU, while PAD’s contribution is very small
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1999 2001 2002 2003 2004 2005
Lain-lain
DAK
DAU
Bagi Hasil Bukan Pajak
Bagi Hasil Pajak
PAD
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2004 2005
Lain-lain
DAK
DAU
Bagi Hasil Bukan Pajak
Bagi Hasil Pajak
PAD
Note:
•DAU (Dana Alokasi Umum) is general block grant
•PAD (Pendapatan Asli Daerah) is local government own source revenue
Nias Nias Selatan
However, the two districts have among the lowest public resources in North Sumatera
(revenue per capita 2004)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Kota S
ibolga
Kab. P
akpak Bharat
Kota T
ebing Tinggi
Kota P
adang Sidem
puan
Kota T
anjung Balai
Kota P
ematang S
iantar
Kota B
injai
National
Kab. T
apanuli Utara
Kab. T
oba Sam
osir
Kab. T
anah Karo
North S
umatera average
Kab. T
apanuli Tengah
Kab. D
airi
Kab. H
umbang H
asundutan
Kab. M
andailing Natal
Kota M
edan
Kab. T
apanuli Selatan
Kab. S
imalungun
Kab. N
ias
Kab. Langkat
Kab. Labuhan B
atu
Kab. A
sahan
Kab. D
eli Serdang
Kab. N
ias Selatan
Mill
ion
rupi
ah Nias Nias Selatan
Nias and Nias Selatan have the highest poverty rates in North Sumatera
Source: BPS, 2004
0
25,000
50,000
75,000
100,000
125,000
150,000
175,000
200,000
Kot
a B
inja
i
Kot
a M
edan
Kab
. Del
i Ser
dang
Kot
a S
ibol
ga
Kot
a T
ebin
g T
ingg
i
Kot
a P
emat
ang
Sia
ntar
Kot
a T
anju
ng B
alai
Kab
. Asa
han
Kot
a P
adan
g S
idem
puan
Kab
. Lab
uhan
Bat
u
Kab
. Sim
alun
gun
Kab
. Tap
anul
i Uta
ra
Kab
. Lan
gkat
Kab
. Tan
ah K
aro
Kab
. Tob
a S
amos
ir
Kab
. Man
daili
ng N
atal
Kab
. Dai
ri
Kab
. Tap
anul
i Sel
atan
Kab
. Tap
anul
i Ten
gah
Kab
. Nia
s
Kab
. Nia
s S
elat
an
0%
5%
10%
15%
20%
25%
30%
35%Number of poor Poverty rate
Reconstruction spending
By December 2006, US$ 495 million had been allocated to the reconstruction effort in the region, slightly higher than the core minimum needs
Million USD
Donors(204)
D & L (392)
GoI(131)
NGOs(160) Inflation (31)
0
100
200
300
400
500
600
1 2ProgramNeeds
However, regional imbalance persist- Nias Selatan remains under-funded (December, 2006)
Million USD
(231)
(161)
(353)
(142)
0
100
200
300
400
Nias Nias Selatan
Needs Program
Reconstruction in Nias is showing some sign of progress, but the lack of progress in Nias Selatan is alarming (December, 2006)
Program(142)
Program(353)
Disbursement
18%
Disbursement
(43%)
0
100
200
300
400
Nias Nias Selatan
US
$ M
illio
ns
Reconstruction progress in Nias Island, December 2006
Sectors Damage/Needs Progress by March 2006 Progress by December 2006
Housing
13,500 unit houses
1448 permanent house
5440 permanent houses built/repaired
350 non permanent houses/transitional house
Education
755 out of 879 schools
damaged/destroyed
12 new schools built, 98 under construction
200 schools tents
124 permanent schools built/repaired
214 temporary schools Health 2 hospitals
170 health facilities required repair Revitalization of Gunung
Sitoli hospital 16,000 children immunized
against measles
1 hospital rebuilt 19 health facilities repaired
Infrastructure
3 bridges. 800 km district roads damaged 266 km provincial roads damaged 12 large and small ports/jetties
destroyed
Upgrading 130 km provincial road and 126 km district roads
Preparation 12 ports
37 bridges built 309 km road built, 250 km
under repaired 3 ports/jetties and 2
airports under development
Source: BRR NAD-Nias
Local Governments’ Expenditure
Local governments’ spending has tripled since decentralization
Nias
Nias & Nias Selatan
0
100
200
300
400
500
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006_planR
ph
Bill
ion
Routine spending has an increasing share particularly after decentralization
Routine Expenditure
Development Expenditure
0
25
50
75
100
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Sh
are
of
tota
l exp
end
itu
re (
%)
Sectoral spending on government apparatus is getting priority –infrastructure is declining
0
20
40
60
80
100
2001 2002 2003 2004 2005
Rph
Bill
ion
General govt adm. Infrastructure HealthEducation & culture Other sectors Subsidy & other exp.Unexpected exp.
Personnel expenses is taking a large share of routine spending, leaving little for operational and maintenance
Personnel Expense
80%
Goods Expense7%
Operational/Maintenance Expense
2%
Travelling Expense
4%
Financial Assistance to the Lower Level Govt
6%
Unexpected Expenses
1%
Personnel Expense
67%Goods Expense
10%
Operational/Maintenance Expense
2%
Travelling Expense
3%
Financial Assistance to
the Lower Level Govt
16%
Unexpected Expenses
2%
Kabupaten Nias, 2005 Kabupaten Nias Selatan, 2005
Nias and Nias Selatan allocate most of their budget for apparatus expenditure (2005)
Nias Nias Selatan Total Expenditure % % %
Apparatus Expense 159.2 71 31.5 36 190.7 61
General Administration 141.3 63 25.4 29 166.7 54
Operational & Maintenance 12.4 6 4.1 5 16.4 5
Capital 5.6 2 2.0 2 7.5 2
Public Expense 52.8 24 45.0 52 97.9 31
General Administration 2.0 1 22.2 26 24.2 8
Operational & Maintenance 31.6 14 20.2 23 51.8 17
Capital 19.3 9 2.6 3 21.9 7
Unexpected Expenses 2.1 1 0.9 1 3.0 1 Financial Assistance & Sharing Exp 9.8 4 9.6 11 19.4 6
Total 224.0 100 87.0 100 311.0 100
*Local government budget classification based on Ministerial Decree No. 29/2002
Education Sector
Unlike the national average, Nias and Nias Selatan allocate a large share of their budget to education
0
20
40
60
80
100
2001 2002 2003 2004 2005
Bill
ion
ru
pia
h
0%
10%
20%
30%
40%
50%
Total education expenditure % total expenditure
However, the two districts have among the lowest per capita spending on education – resulted from a relatively low total budget (2004)
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Kota
Padang S
idem
puan
Kab. T
apanuli U
tara
Kota
Sib
olg
a
Kab. T
oba S
am
osir
Kab. T
anah K
aro
Kab. D
airi
Kota
Tebin
g T
inggi
Kota
Pem
ata
ng S
ianta
r
Kab. S
imalu
ngun
Kota
Bin
jai
North
Sum
ate
ra a
verg
a
Kab. T
apanuli T
engah
Kab. T
apanuli S
ela
tan
Kota
Tanju
ng B
ala
i
Natio
nal a
vera
ge
Kab. N
ias
Kab. H
um
bang H
asunduta
n
Kab. A
sahan
Kab. L
abuhan B
atu
Kab. D
eli S
erd
ang
Kab. L
angkat
Kota
Medan
Kab. N
ias S
ela
tan
Nias Nias Selatan
Key Issues in Education Given a large share of current allocation on education,
the most effective way to improve the outcomes is to use the existing level of spending more efficiently;
Gross Enrollment Rate in junior and senior high school is below North Sumatera and Indonesia average;
Literacy rates for the two districts are the lowest among districts in North Sumatera;
Insufficient and unequal distribution of teachers accross sub-districts, particularly in Nias Selatan;
Unequal distribution of primary schools among sub-districts of Nias and Nias Selatan;
Poor condition of school building and classrooms. The tsunami and earthquake had a severe impact on education and further decreases the quality of education.
Health Sector
Health spending has increased after decentralization
02468
101214161820
2001 2002 2003 2004 2005
Bill
ion
rupi
ah
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Total health expenditure % total expenditure
However, per capita spending was still lower than districts and national average (2004)
020,00040,00060,00080,000
100,000120,000140,000160,000180,000200,000
Kota
Sib
olg
a
Kota
Tebin
g T
inggi
Kota
Bin
jai
Kab. T
anah K
aro
Kota
Pem
ata
ng S
ianta
r
Kota
Padang S
idem
puan
Kab. D
airi
Kab. T
apanuli U
tara
North
Sum
ate
ra a
vera
ge
Kota
Tanju
ng B
ala
i
Natio
nal a
vera
ge
Kab. T
oba S
am
osir
Kota
Medan
Kab. L
abuhan B
atu
Kab. N
ias
Kab. T
apanuli T
engah
Kab. H
um
bang H
asunduta
n
Kab. T
apanuli S
ela
tan
Kab. L
angkat
Kab. S
imalu
ngun
Kab. A
sahan
Kab. D
eli S
erd
ang
Kab. N
ias S
ela
tan
Nias Nias Selatan
Key Issues in Health
Health outcomes on Nias Island still lag behind provincial and national averages:
Infant mortality rates on the Island is higher (36.1%) than North Sumatera (33.5%) and Indonesia rates (32.8%);
A large number of deliveries are attended by traditional midwives (dukun); Immunization coverage is relatively low (33.3% in Nias and 15.8% in Nias
Selatan respectively) compared with provincial (49.9) and national coverage (64.3).
Insufficient supply of health personnel and unequal distribution of health workers among sub-districts across the island need to be addressed;
The availability of health facilities in Nias was above provincial average, but lacking in Nias Selatan. A large number of health facilities were severely damaged after the earthquake;
Spending on operational and maintenance is very low (3 percent of routine expenditure) - insufficient to effectively maintain medical equipment and health facilities.
Infrastructure Sector
Spending on infrastructure has declined sharply after decentralization
0
10
20
30
40
50
60
70
2001 2002 2003 2004 2005
Bill
ion
ru
pia
h
0%
5%
10%
15%
20%
25%
30%
35%
Total infrastructure expenditure % total expenditure
Local governments allocation on infrastructure maintenance is worrying
2001 2002 2003 2004 2005
Others
Official travel
Operational &maintanance
Goods/services
Personnel
2004 2005
Others
Official travel
Operational &maintanance
Goods/services
Personnel
Nias Nias Selatan
Key Issues in Infrastructure
Local government low priorities on infrastructure resulted in poor outcomes:
Households in Nias and Nias Selatan have among the lowest access to clean water and electricity in North Sumatra;
81 percent and 78 percent of road in Nias and Nias Selatan is badly damaged;
Only 22 percent of the rice fields in Nias island are irrigated, compared to 50 percent in North Sumatera and 60 percent of Indonesia average.
Local governments involvement in reconstruction still insufficient: Local governments has declining trend of infrastructure spending,
probably as a result of the increased investment by BRR and donors; The capacity of local governments to continue the reconstruction
process after BRR mandate finished remains a major challenge; Operational and maintenance budget will probably have to increase to
properly maintain and run the new reconstruction assets
Local Governments’ Capacity
Local governments capacity to manage public finance is still poor
0
20
40
60
80
100Local regulatory framew ork
Planning and budgeting
Cash management
Procurement
Accounting and reporting
Internal audit
Public debt and investment
Asset management
External audit and oversight
Average Score
Nias Nias Selatan
Key Issues
The capacity of local governments in public financial management is weak and needs substantial up-grading;
The educational level of attainment of most civil servant (70 percent) is only senior high school;
Further proliferation of districts needs to be scrutinized – it could reduce efficiency and economies of scale in public service delivery, with a concurrent rise in routines expenditures;
The delays in budget approval processes could disturb the planning and cash flow of the related fiscal year.
Recommendations
Section RecommendationRevenue Improve transfer allocations (DAU) among districts by taking into account
poverty and other social indicators. The DAU allocation formula should be more sensitive to poverty and fiscal gap, as opposed to benefiting districts with large civil servant salary bills; District governments should focus on stimulating economic activities rather than seeking to maximize short-term own source revenue.
Expenditure Scrutinize the increase in routine spending and set appropriate shares for operational and maintenance; Allocation of development expenditure on government apparatus should be scrutinized, public services and infrastructure should be priority of development spending.
Education Provides incentives for qualified teachers to teach in remote area; Accelerate rehabilitation of schools, but restrain the building of additional schools until there are sufficient numbers of teachers and adequate funding to maintain current school buildings.
RecommendationsSections RecommendtionsHealth Increase budget allocation on health by focusing more on quality of health
personnel and improved health outcomes; Provide appropriate incentives mechanism to improve the number of health personnel in Nias island; Ensure that the investments made by BRR are focused on meeting well-defined health outcomes targets.
Infrastructure Local governments involvement should be strengthened to develop a sense of ownership of the projects as well as to improve the skills and capacity in future planning; Develop short-term and long-term development program on infrastructure; Improve budget allocation on maintenance to sustain the current reconstruction progress.
LGs capacity Improve local government financial management capacity ie. by having a joint-funded capacity training with BRR, donors, and NGOs; The creation of new districts/sub-districts should be under adequate preparation and ensure that physical infrastructure and human resources are in place to manage a new administration.
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