46313 Service Delivery and Financial Management in a New Province G o ro n t a l o Pu b l i c E x p e n d i t u re A n a l y s i s 2 0 0 8 GPEA THE WORLD BANK OFFICE JAKARTA Jakarta Stock Exchange Building Tower II/12-13th Fl. Jl. Jend. Sudirman Kav. 52-53 Jakarta 12910 Tel: (6221) 5299-3000 Fax: (6221) 5299-3111 THE WORLD BANK The World Bank 1818 H Street N.W. Washington, D.C. 20433 USA Tel: (202) 458-1876 Fax: (202) 522-1557/1560 Email: feedback@worldbank.org Website: www.worldbank.org Printed in March 2008 Cover photographs Top left: Copyright © Bambang Supriyanto (University of Gorontalo) Top right, bottom right: Copyright © Province of Gorontalo's Bapppeda Bottom left, bottom middle: Copyright © Bastian Zaini Inside photographs Copyright © Bambang Supriyanto (University of Gorontalo): Executive Summary and Chapter 5. Copyright © Province of Gorontalo's Bapppeda: Chapter 1, Chapter 6, and Annexes. Copyright © Bastian Zaini: Inside Cover, Chapter 2, Chapter 3, and Chapter 4. Gorontalo Public Expenditure Analysis: Service Delivery and FinancialManagement in a New Province is a product of sta of the World Bank. The ndings, interpretation and conclusion expressed herein do not necessarily re ect the views of the Board of Executive Directors of the World Bank or the government they represent. TheWorldBankdoesnotguaranteetheaccuracyofthedataincludedinthiswork.Theboundaries,colors,denomination and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement of acceptance of such boundaries. For any questions regarding this report, please contact Bastian Zaini, bzaini@worldbank.org. Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis Gorontalo Public Expenditure Analysis Acknowledgments This report was prepared by a team from the World Bank led by Bastian Zaini, together with Bambang Sukarnoko, Eleonora Suk Mei Tan, John Theodore Weohau, and Diane Zhang. The core team also comprised Akhmad Bayhaqi, Caroline Tupamahu, Sukmawah Yuningsih, and Yudha Permana. The team from the University of Gorontalo was led by Bambang Supriyanto and included Bachtiar, Duke Arie Widagdo, Elvis Mus Abdul, Fitriary A. Puhi, Hartati Inaku, Ilyas Lamuda, Mohamad Rolli Paramata, Razak H. Umar, Syamsul Qamar Ngabito. The University of Gorontalo team prepared the background of the report and managed the initial data collection and analysis. Wolfgang Fengler supervised the overall process. Richard Manning and Petrarca Karetji provided outreach and facilitation to the provincial government. The report bene ted from valuable inputs from peer reviewers Claudia Rokx and Daan Pattinasarany from the World Bank. Valuable comments were also received from Ahmad Zaki Fahmi, Ahya Ihsan, Andy Ragatz, Cut Dian Rahmi, Javier Arze Del Granado, Steen Sonne Andersen, and Soekarno Wirokartono. Input from Enrique Blanco Armas and Peter Milne in the latter stages were of particular value. Thanks also go to Peter Milne for editing, Arsianti for assisting with formatting and production, and Sylvia Njotomihardjo for logistical support. The team would like to express its gratitude to all the technical agencies (Dinas) involved in the data collection and analysis. The team is especially grateful to Governor Fadel Muhammad, Ibu Winarni Monoarfa (Head of Gorontalo's Provincial Bappeda), and Bapak Andha Miraza (Head of Gorontalo's BKD) for their continuous support and commitment. Appreciation also goes to the Dutch government, which provided substantial nancial support. iv Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis Foreword As one of Indonesia's recently established provinces, since 2001 Gorontalo has faced numerous challenges, the most daunting being one of the country's highest levels of poverty. Gorontalo's sub-national governments shoulder a heavy responsibility in ensuring the rapid development of the region, alleviating poverty and improving the provision of basic public services -- especially in education and health -- and making sure those services reach the poorest and most vulnerable groups. In performing these crucial tasks, the success of sub-national governments depends to a large degree on three factors: the ability of sub-national governments to de ne and then translate their visions for development into e ective development plans; the existing capacity of the government bureaucracy; and the availability of budgetary resources. A clear and well-articulated vision is needed to guide regional development, one that should serve to synergize the e orts of multiple stakeholders to make full use of the latent potential that exists in Gorontalo. Moreover, for a region with limited resources such as Gorontalo, strong leadership is needed to encourage the people to make the best possible use of those resources in providing a better future to all levels of society. Since becoming a new province, Gorontalo has demonstrated that high levels of poverty need not be an obstacle to implementing good governance, formulating an e ective development vision or ensuring sound development planning. Successful poverty alleviation depends most on identifying dormant local potential and focusing e orts to stimulate growth from this potential. Gorontalo has started such e orts with its Corn Agropolitan Program and the development of Tomini Bay, one of eastern Indonesia's sheries development showcases. The province of Gorontalo is one of the leaders in local government reform, especially in public nancial management and government bureaucracy. For instance, in 2003 Gorontalo applied performance-based budgeting principles in preparing its budget, while in 2004 it started to develop minimum service standards for several nancial services, together with cost standardization, as a basis for formulating performance-based budgeting. These examples show the provincial government's determination to reform the bureaucracy, especially those areas related to regional public nancial management. This report is a product of close collaboration between the World Bank, the Support O ce for Eastern Indonesia (SOfEI), the Research Institute of the University of Gorontalo, the Provincial Bappeda, and the Provincial BKD, as well as the district governments in the province of Gorontalo. We hope that this report can bene t the provincial and district governments of Gorontalo, as well as other regional governments, in serving as a reference tool for reform e orts in regional public nancial management and regional development planning. Ultimately, our hope is that this report can contribute towards better management of regional public nances and government bureaucracy, leading to new standards in e ective entrepreneurial government. Fadel Muhammad Joachim von Amsberg Governor Country Director, Indonesia The Province of Gorontalo The World Bank O ce, Jakarta Service Delivery and Financial Management in a New Province v Gorontalo Public Expenditure Analysis Glossary of Terms APBD Regional Government Budget (Anggaran Pendapatan dan Belanja Daerah) APBN State Budget (Anggaran Pendapatan dan Belanja Negara) Bappeda Regional Development Planning Agency (Badan Perencanaan Pembangunan Daerah) Bapppeda Regional Accelerated Development Planning Agency (Badan Perencanaan Pembangunan Daerah) Bappenas National Development Planning Agency (Badan Perencanaan Pembangunan Nasional) Bawasda Regional Monitoring Agency (Badan Pengawasan Daerah) BKD Regional Finance Agency (Badan Keuangan Daerah) BPHTB Land and building transfer fee (Bea Perolehan Hak atas Tanah dan Bangunan) BPS Central Bureau of Statistics (Badan Pusat Statistik) Bupati District Head DAK Special Allocation Fund (Dana Alokasi Khusus) DAU General Allocation Fund (Dana Alokasi Umum) Desa Village Dinas Local Technical Agency O ce DPRD Provincial House of Representatives (regional parliament) (Dewan Perwakilan Rakyat Daerah) FGD Focus Group Discussions GDP Gross Domestic Product GER Gross Enrollment Rate (Angka Partisipasi Kotor) GoI Government of Indonesia GRDP Gross Regional Domestic Product HDI Human Development Index Inpres Presidential Grants (Instruksi Presiden) Kabupaten District (regency) Kecamatan Subdistrict Kelurahan Urban village Kepmen Ministerial Decree (Keputusan Menteri) Keppres Presidential Decision (Keputusan Presiden) Km Kilometer Kota City (urban district) LG Local Government MDG Millennium Development Goal MoF Ministry of Finance MoHA Ministry of Home A airs MoNE Ministry of National Education NER Nett Enrollment Rate (Angka Partisipasi Bersih) NGO Non-Governmental Organization O&M Operations and Maintenance PAD Own-Source Revenue (Pendapatan Asli Daerah) PBB Land and Building Tax (Pajak Bumi dan Bangunan) PDAM Local Water Supply Utility (Perusahaan Daerah Air Minum) Perpu Regulation in Lieu of Law (Peraturan Pemerintah Penggati Undang-Undang) Perda Regional Regulation (Peraturan Daerah) PFM Public Financial Management PLN National Electricity Company (Perusahaan Listrik Negara) Podes BPS Village Potential Survey (Potensi Desa) Polindes Village Maternity Center (Pos Persalinan Desa) Puskesmas Community Health Center at Subdistrict Level (Pusat Kesehatan Masyarakat) Posyandu Integrated Health Service Unit (Pusat Pelayanan Terpadu) Pustu Subcommunity Health Center (Puskesmas Pembantu) vi Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis Regional Budget Consolidated Budget consisting Central Government Budget (Deconcentrated), Provincial Budget, and District Budget. RGDP Regional Gross Domestic Product SD Primary School (Sekolah Dasar) SDO Subsidy for Autonomous Region (Subsidi untuk Daerah Otonom) SIKD Regional Finance Information System (Sistem Informasi Keuangan Daerah) SKPD Regional Government's Working Unit (Satuan Kerja Pemerintah Daerah) SME Small/Medium Enterprise SMP Junior High School (Sekolah Menengah Pertama) STR Student Teacher Ratio Sub-national Budget Consolidated Budget consisting Provincial and District Budgets. Susenas BPS National Socio-Economic Survey (Survei Sosial Ekonomi Nasional) TKD Regional Performance Bonus (Tunjangan Kinerja Daerah) WB World Bank Service Delivery and Financial Management in a New Province vii Gorontalo Public Expenditure Analysis Table of Contents Acknowledgments iv Foreword v Glossary of Terms vi Table of Contents viii List of Figures x List of Tables xi Executive Summary 1 Revenues and Expenditures 3 Spending in Strategic Sectors 5 Public Financial Management 8 Civil Service and Administrative Reforms 9 Agenda for Implementation 9 Chapter 1. Overview 13 The History 14 The Economy 15 Challenges and Opportunities in the Economy 19 Chapter 2. Revenue and Financing 22 Overall Revenue Picture 22 The Special Allocation Fund (DAK) 26 Shared Revenue 27 Own-Source Revenue (PAD) 28 Financing 30 Recommendations 32 Chapter 3. Expenditure 33 Overall Expenditure Picture 34 Sectoral Allocation 36 Economic Classi cation: Capital vs Non-Capital Expenditure 38 Planned vs Realization 39 Central Government's Deconcentrated Spending 41 Recommendations 43 Chapter 4. Investing in the Strategic Sectors 45 Education Sector 46 Infrastructure Sector 55 Health Sector 59 Agriculture, Fisheries and Forestry Sector 65 Chapter 5. Public Financial Management Processes at the Provincial and District Levels 71 Overview 72 Regulatory framework 73 Planning and Budgeting 74 Cash Management 77 viii Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis Procurement 78 Accounting and Reporting 78 Internal Audit 78 Recommendations 79 Chapter 6. Administration and Governance 81 Bureaucratic Reform 82 Institutional and Functional Reforms 84 Salary Reform 86 Recommendations 88 References 89 Annexes 91 Annex A: What is Gorontalo Public Expenditure Analysis 92 Annex B: Agenda for Implementation 93 Annex C: Methodological Note 98 Annex D: Gorontalo Public Finance Post-Decentralization 99 Annex E : Socio-Economic Indicators Post-Decentralization 104 Service Delivery and Financial Management in a New Province ix Gorontalo Public Expenditure Analysis List of Figures Figure 1. Gorontalo: growing resources, low income and declining poverty 2 Figure 2. Gorontalo's scal resources per capita have increased signi cantly 3 Figure 3. Central government spending on decentralized sectors, 2005 4 Figure 4. Sub-national spending on government administration is increasing rapidly 4 Figure 5. Trends in, and economic classi cation of, education spending 5 Figure 6. Trends in infrastructure spending, 2002-05 (L), and infrastructure capital expenditure, 2005 (R) 6 Figure 7. Over half of Gorontalo's households have no access to electricity 7 Figure 8. Regional health expenditure trends, 2002-05 (L), and sub-national economic classi cation (R) of 7 health spending, 2005 Figure 9. Corn productivity is increasing, 2002-05 8 Figure 10. Consolidated PFM results for Gorontalo 9 Figure 1.1. Key facts about Gorontalo 14 Figure 1.2. Despite its small size, Gorontalo's economy is growing fast 16 Figure 1.3. Agriculture is the largest contributor to the economy 17 Figure 1.4. Half of Gorontalo's workforce is in agriculture 17 Figure 1.5. Unemployment in Gorontalo is higher than other regions 18 Figure 1.6. In ation in Gorontalo is similar to other regions 18 Figure 2.1. Gorontalo's scal resources have increased signi cantly 22 Figure 2.2. Revenues of Gorontalo's districts, 2005 24 Figure 2.3. Gorontalo's sub-national scal resources are the weakest among new provinces 24 Figure 2.4. Gorontalo's DAU per capita increased signi cantly in 2006 25 Figure 2.5. Distribution of DAU relative to scal gap and wage bill, 2006 26 Figure 2.6. DAK allocations by sector, 2006 27 Figure 2.7. DAK boosted per capita revenues of newly created districts 27 Figure 2.8. Kota Gorontalo collects most own-source revenue per capita, 2005 29 Figure 2.9. Gorontalo's surpluses and de cits 31 Figure 3.1. Driven by deconcentrated spending, total expenditure is increasing faster than national 34 spending Figure 3.2. Consolidated total expenditure per capita by province, 2005 35 Figure 3.3. Gorontalo's consolidated sub-national expenditure is the lowest among new provinces, 2005 35 Figure 3.4. Consolidated sub-national spending on government adminstration is increasing 36 Figure 3.5. Capital expenditure is increasing but personnel spending is the largest item 38 Figure 3.6. Central government deconcentrated spending per capita by province, 2005 42 Figure 3.7. Central government spending on decentralized sectors, 2005 42 Figure 4.1. Educational attainment by year of birth 46 Figure 4.2. Trends in regional education spending 49 Figure 4.3. Sub-national education spending per student enrolled in primary and secondary school by 49 province, 2005 Figure 4.4. Economic classi cation of education expenditure, 2005 Districts/Cities Province 51 Figure 4.5. Boalemo spends least on education, 2005 51 x Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis Figure 4.6. Access to public primary education by income group 52 Figure 4.7. Access to safe water is in line with other regions but not access to electricity 54 Figure 4.8. Gorontalo's access to electricity is one of the lowest in the country 55 Figure 4.9. Trends in regional infrastructure spending, 2002-05 55 Figure 4.10. Sub-national infrastructure spending, 2005 56 Figure 4.11. New districts spent higher shares on infrastructure, 2005 57 Figure 4.12. Economic classi cation of infrastructure spending, 2005 58 Figure 4.13. Infrastructure capital spending by sub-national governments in Gorontalo, 2005 58 Figure 4.14. Health services utilization, 2005 59 Figure 4.15. Public health facility utilization is higher than regional averages 60 Figure 4.16. Trends in regional health expenditure 61 Figure 4.17. Cross province sub-national health spending, 2005 61 Figure 4.18. District health expenditures, 2005 63 Figure 4.19. Allocation of sub-national health capital expenditure, 2005 64 Figure 4.20. Employment sectors in Gorontalo, 2005 65 Figure 4.21. Trends in corn and rice productivity 66 Figure 4.22. Trends in regional agriculture, sheries and forestry spending 67 Figure 4.23. Cross province sub-national AFF spending, 2005 68 Figure 4.24. Economic classi cation of spending on agriculture and sheries, 2005 69 Figure 4.25. Economic classi cation of AFF spending by district, 2005 70 Figure 5.1. Gorontalo's scores are among the highest surveyed 72 Figure 5.2. The dynamics of PFM legal frameworks at the provincial level in Gorontalo 74 Figure 5.3. The planning process is synchronized with public consultations at the DPRD 75 Figure 5.4. Provincial level internal audits reveal far more administrative ndings 79 Figure 6.1. The number of civil servants in Gorontalo is increasing 82 Figure 6.2. Increasing capacity pro le of provincial civil servants 83 Figure 6.3. The merging of Biro Keuangan and Dispenda in 2004 84 Figure 6.4. Cutting the red tape: from 14 desk stages down to just two 85 Figure 6.5. Provincial spending pattern, 2005 86 Figure 6.6. TKD is the third largest spending item at the provincial level, 2005 87 List of Tables Table 1.1 Inequality in Gorontalo 20 Table 2.1. Gorontalo's scal revenue composition, 2002-06 23 Table 2.2. Shared revenue, realized vs planned 28 Table 2.3. Gorontalo's own-source revenue composition, 2002-06 29 Table 2.4. Typical district/city local taxes and user charges, 2005 30 Table 2.5. Own-source revenue, realized vs planned 30 Table 2.6. Gorontalo's nancing, 2005 31 Table 2.7. Carryovers reported by provincial and district governments, 2006 32 Service Delivery and Financial Management in a New Province xi Gorontalo Public Expenditure Analysis Table 3.1. Gorontalo's expenditure by sector 37 Table 3.2. Personnel spending is the largest item, with goods and services fast increasing 39 Table 3.3. Planned vs realized spending, 2002-05 40 Table 3.4. Expenditure, planned vs realized, 2002-05 40 Table 4.1. Trends in net and gross enrollment rates 47 Table 4.2. Teacher oversupply in Gorontalo, 2005 48 Table 4.3. Secondary education enrollment rates vary widely, 2005 48 Table 4.4. Regional education expenditure (province + district + deconcentrated) 50 Table 4.5. Trends in infrastructure outcomes 53 Table 4.6. Regional infrastructure expenditure 56 Table 4.7. Access to healthcare services in Gorontalo, 2005 60 Table 4.8. Regional health expenditures (province + district + deconcentrated) 62 Table 4.9. Economic classi cation of health expenditures, 2005 63 Table 4.10. Per capita monthly out-of-pocket health expenditures 64 Table 4.11. Breakdown of regional agriculture, sheries and forestry spending 67 Table 5.1. Results of the PFM survey in nine strategic areas 73 Table 5.2. Evolving budget formats 76 Table 5.3. Provincial-level PFM reform agenda implementation 77 Table 6.1. Comparison of the TKD scheme across various regions 87 xii Service Delivery and Financial Management in a New Province Executive Summary Gorontalo Public Expenditure Analysis EXECUTIVE SUMMARY Gorontalo Public Expenditure Analysis As one of the poorest provinces in Indonesia, Gorontalo has made consistent progress in reducing poverty since decentralization. The province's increasing scal resources, together with increasing deconcentrated spending from the central government, have helped Gorontalo to signi cantly reduce poverty levels. Furthermore, openness towards reform has made the province into one of the leading regions in e orts to reform public nancial management and engender good governance. However, Gorontalo's increasing scal resources and its commitment towards reform have not yet been re ected in signi cant improvements in socio-economic conditions. Despite lower poverty levels, Gorontalo remains among the poorest provinces in the country and public service delivery continues to lag behind other regions. The province of Gorontalo was one of the rst new provinces to be established early on in Indonesia's `big- bang' decentralization. Previously one of four districts comprising North Sulawesi, Gorontalo became Indonesia's 30th province in February 2000.1 Several fundamental characteristics supported Gorontalo's bid for autonomy from North Sulawesi, including a strong sense of its own local history, culture di erences setting it apart from North Sulawesi, and lagging socio-economic indicators compared with the `mother' region. After the separation, the province experienced a signi cant increase in scal resources. Furthermore, since 2001 the provincial government has demonstrated openness to reform, implementing a variety of innovations in public nancial management and local governance. Su ering from high poverty levels, Gorontalo has a relatively small economy and is heavily dependent on central government transfers. Prior to decentralization, Gorontalo had one of the highest poverty rates in the country, at over 49 percent, together with low per capita GRDP and spending gures. These indicators have improved since the new province experienced a dramatic increase in spending following 2001, indicating that the additional resources have helped Gorontalo to the narrow the gap with the rest of the country (Figure 1). For instance, while the national average poverty rate fell from 23 percent in 1999 to 17 percent in 2004 -- a 26 percent reduction -- Gorontalo's poverty rate declined from 49 percent to 29 percent in the same period -- a 41 percent reduction. The increase in resources has been largely funded by transfers from the central government through the General Allocation Fund (DAU) and deconcentrated spending by the line ministries. Figure 1. Gorontalo: growing resources, low income and declining poverty 1999 2004 12 12 10 10 million) Million) (Rp (Rp National average (17) 8 8 National average (23) Capita Capita 6 6 Per Per GDP 4 GDP 4 2 2 Regional Regional Gorontalo (29) Gorontalo (49) - - - 500 1,000 1,500 2,000 - 500 1,000 1,500 2,000 Regional Spending Per Capita (Rp '000) Regional Spending Per Capita (Rp '000) Source: World Bank sta calculations based on SIKD MoF, BPS. Note: The size of the circles and the numbers in brackets represent poverty headcount (%). Riau, DKI Jakarta, East Kalimantan, and Papua are excluded for visual purposes. Gorontalo's weak socio-economic indicators stem from its heavy reliance on a relatively undeveloped agriculture sector. Typical of many lagging regions, high poverty levels and low GRDP per capita gures are prevalent in Gorontalo. The local economy is highly reliant on the agriculture sector, with low contributions coming from manufacturing and services. As a result, currently over 55 percent of the workforce is employed in agriculture, either in subsistence farming or large agro-industry operations. Given the current stage of development of the sector, agriculture alone is unable to drive Gorontalo's economy. Agriculture will only start to drive the province's economic development and raise per capita GRDP when the productivity and value-added of the sector improves. Hence, there needs to be a transition towards agriculture-based manufacturing or agro-industry. 1 The law was passed in 2000 and the province inaugurated in 2001. Gorontalo received its rst full year budget in 2002. 2 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis EXECUTIVE SUMMARY Revenues and Expenditures Similar to other newly autonomous regions in Indonesia, Gorontalo experienced a dramatic increase in scal resources after its formation in 2000. On average, Indonesia's regions saw their per capita revenues surge by over 200 percent in 2001 (World Bank, 2007a), while in Gorontalo's case revenues surged by over 300 percent -- even though the province did not receive a full-year budget until 2002. In the period from 1998 to 2006, Gorontalo's total per capita revenue jumped from about Rp 400,000 to over Rp 1.6 million (Figure 2). The main source of the increase in scal resources is from a signi cant increase in DAU transfers from the central government. Figure 2. Gorontalo's scal resources per capita have increased signi cantly 1800 1600 1400 1200 1000 800 `000 Rp 600 400 200 0 1998 1999 2000 2001 2002 2003 2004 2005 2006* Own Source Revenue Shared Taxes Shared Nat Resources Autonomous Region Subsidy/SDO (Development) Presidentil Grants/INPRES DAU DAK Other Balancing Fund Other Revenue Source: Gorontalo PEA database, University of Gorontalo. Note: Consolidated sub-national revenues include provincial and district/city revenues. Figures are in real terms at constant 2005 prices. * Figures for 2006 are budgeted gures. Since 2005, central spending has returned to dominate in Gorontalo once again. District-level spending dominated sub-national spending (province and district) in the years immediately after decentralization, but total regional spending (province, district and deconcentrated) has come to be dominated by deconcentrated spending since 2005. Although this has been a common occurrence throughout Indonesia since 2005, it has had a more signi cant impact in Gorontalo due to the modest size of sub-national government spending. Inevitably, this means that today the central government still plays a major role in determining priorities and implementation activities. In several decentralized sectors, such as education and health, deconcentrated spending is considerably higher than total sub-national spending (Figure 3). This also risks the central government crowding out sub-national spending and encroaching on the roles of sub-national governments (see Chapters 3 and 4). Service Delivery and Financial Management in a New Province 3 EXECUTIVE SUMMARY Gorontalo Public Expenditure Analysis Figure 3. Central government spending on decentralized sectors, 2005 700 600 500 bn 400 Rp 300 200 100 0 Agriculture Health Administration Infrastructure Others Education and apparatus Province Kabupaten/Kota Deconcentrated Spending Source: MoF and Gorontalo PEA database, University of Gorontalo, 2007. The share of total sub-national expenditure allocated to government administration is increasing, while the proportion spent on education and other sectors is declining. Since decentralization, the level of government administrationspendinghasbeencontinuouslyincreasing. In2006,37percentofGorontalo'ssub-nationalexpenditure went towards government administration, making this the largest spending sector. In the same year, the provincial government spent 46 percent on government administration, while district governments spent 33 percent of their total expenditure on government administration. In contrast, the share of sub-national budget spent on education decreased from 27 percent in 2002 to 21 percent in 2006 (Figure 4). Figure 4. Sub-national spending on government administration is increasing rapidly 1,600 8% 1,400 1,200 22% 1,000 8% 10% Others 17% 17% 21% 19% 800 Infrastructure 16% bn 20% 6% 26% Rp Education 600 27% 5% 18% 28% 82 Health 400 7% 5% 27% 6% 5% Agriculture 4% 37% 5% 200 6% 36% Administration and 29% 32% apparatus 24% 0 2002 2003 2004 2005 2006* Source: Gorontalo PEA database, University of Gorontalo, 2007. Gorontalo utilizes most of its spending on non-capital expenditure, leaving limited resources for capital expenditure. In 2002, capital expenditure was 44 percent of consolidated sub-national expenditure. Subsequently, the share decreased to a low of 24 percent in 2005, although this increased somewhat in 2006 to 28 percent. Meanwhile, non-capital expenditure has continued to dominate, with personnel expenditure the main spending item, which now accounts for over 40 percent of total allocation. 4 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis EXECUTIVE SUMMARY Similar to other regions, Gorontalo is spending a very small share of its resources on operations and maintenance. Spending on maintenance and operations is very low, consistently below 5 percent in the period 2002- 06. This is an issue nationwide and also in Gorontalo low maintenance and operations spending is evident across the strategic sectors: education, infrastructure and health. Spending in Strategic Sectors Education Education spending has increased steadily but declined as a share of total regional expenditure (province, district and deconcentrated). Although spending on education has increased dramatically in nominal terms, particularly in 2005, it has fallen as a share of total regional government spending from 29 percent in 2002 to only 25 percent in 2005 (Figure 5). Similar to other regions, the districts are the main contributors of education spending in Gorontalo, accounting for over two-thirds of regional expenditures. However, deconcentrated spending is rising rapidly. In 2005, districts in Gorontalo spent on average 34.8 percent of their budgets on education, slightly above the national average of 33.7 percent At the district level, teachers' salaries absorb a large share of education spending. District government spending on personnel consumed 86 percent of the sector budget in 2005, leaving 14 percent for other purposes. This is common across Indonesia and is largely explained by an oversupply of teachers, mostly contract teachers. Of the remaining 14 percent, the largest share goes towards capital spending, leaving only a small share to be spent on goods and services, and maintenance. Figure 5. Trends in, and economic classi cation of, education spending 700 35 100% Others 12 11 29 600 26 30 2 25 25 prices) 80% 22 Capital 500 25 2005 400 20 4 60% Maintenance % 300 15 27 86 (constant 40% Travel 200 382 368 10 bn 266 654 Rp 100 5 20% Goods and 33 0 0 services 2002 2003 2004 2005 0% Personnel Regional Expenditures share of total Province Districts Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: The economic classi cation gures are for 2005. Sincedecentralization,enrollmentratesatbothprimaryandsecondaryschoollevelshaveimproved,butwide disparities exist between districts. Since decentralization, enrollment rates and access to schools have improved, although enrollment rates remain below national levels and those of Gorontalo's neighboring provinces. The net enrollment rate for primary schools increased from 81 percent in 2002 to 88 percent in 2005, just 5 percentage points below the national average of 93 percent. However, wide variations between districts remain a serious concern, especially in junior and senior secondary education. Across all levels of education Kota Gorontalo has the highest enrollment rates, while Kabupaten Gorontalo has the lowest. At the junior secondary school level, Kota Gorontalo has an enrollment rate of 74.5 percent, while Kabupaten Gorontalo's enrollment rate is 43.9 percent. Similarly, at the senior secondary school level, Kota Gorontalo's enrollment rate of 57.2 percent is signi cantly higher than the 23.6 percent seen in Kabupaten Gorontalo. Service Delivery and Financial Management in a New Province 5 EXECUTIVE SUMMARY Gorontalo Public Expenditure Analysis Infrastructure Increasing sub-national scal resources and deconcentrated spending have helped to boost infrastructure spending. Regional infrastructure spending more than doubled from 2002 to 2005, rising by 158 percent over the period. However, as a share of total regional spending infrastructure fell from 14.1 percent in 2004 to only 9.3 percent in 2005. Most infrastructure capital spending in Gorontalo went towards roads, bridges, and buildings. In 2005, it accounted for 61 percent of total sub-national infrastructure capital spending. The highest spenders on roads and bridges are the newest districts (Bone Bolango and Pohuwato) and the provincial government, with the largest share going towards roads and bridges (37 percent). Spending on buildings by the provincial government and Kabupaten Gorontalo is also signi cant (Figure 6). Figure 6. Trends in infrastructure spending, 2002-05 (L), and infrastructure capital expenditure, 2005 (R) 300 16 70 14.1 14 60 250 12.4 12 50 10.4 200 9.3 nb 10 pR 40 2005) 150 8 % 30 (Real 6 bn 247 20 100 Rp 180 206 4 10 50 96 2 Province Kab. Pohuwato Bone Bolango Boalemo Kota 0 0 Government Gorontalo Gorontalo 2002 2003 2004 2005 Regional Expenditures share of total expenditures Roads and bridges Building Irrigation Equipments Others Source: Gorontalo PEA database, University of Gorontalo, 2007. Gorontalo has better road and irrigation coverage than the rest of Indonesia. The level of irrigation in Gorontalo is higher than the national average, at 78 percent versus 71 percent nationally. Gorontalo's road coverage is also more extensive than the national average, with 53 percent of villages in all districts having access to roads. Road quality data suggest that across all road types (national, provincial and districts roads), road quality is relatively high compared with national averages, re ecting the high share of sub-national infrastructure capital spending allocated to roads and irrigation. On the other hand, less is spent on sanitation. This is a concern in a province in which more than half all households have no access to sanitation facilities. Gorontalo's access to electricity is one of the lowest in Indonesia. Unlike road infrastructure and irrigation, which are mostly covered by sub-national spending, the central government is responsible for electricity. Across Gorontalo only 46 percent of households have access to electricity, leaving more than half of the province's households without electricity. This is the worst provincial level of access in Sulawesi (Figure 7). Nationwide only three provinces -- Papua, and West and East Nusa Tenggara -- have lower household access to electricity. 6 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis EXECUTIVE SUMMARY Figure 7. Over half of Gorontalo's households have no access to electricity 100 National Average Gorontalo (2005) (2005) 80 60 40 20 0 Bali Timur Barat Riau Riau Papua Utara Jambi Barat Barat Timur Utara Aceh Barat Timur Utara Tengah Selatan Maluku Tengah Tengah Selatan Average Selatan Banten Belitung Gorontalo Tenggara Lampung Bengkulu Jawa Jawa Yogyakarta Maluku Jawa Sumatra Tenggara Tenggara Sulawesi Sumatra Sulawesi Sumatra Nanggroe Kepulauan Kalimantan Sulawesi Bangka National Kalimantan Sulawesi Kalimantan Kalimantan Nusa Nusa Households with access to private electricity (%) Households with access to public electricity (PLN) (%) Source: World Bank sta calculations based on Podes, 2005. Health Health spending in Gorontalo increased dramatically between 2002 and 2005. Consolidated regional health spending, including deconcentrated spending, increased by 342 percent over the period, while sub-national health spending rose by 126 percent. Salaries dominate both provincial and district-level health expenditure. In 2005, the provincialgovernmentspentalmost60percentofhealthexpenditureonsalaries.Thisishigherthanaverageforprovincial governments. At the district level, about 40 percent of health expenditure went towards salaries. While 40 percent is signi cant, it is a lower share than the district average nationally, at 56.1 percent. However, both district and provincial governments spend very little on maintenance. In Gorontalo, maintenance spending is only 2.2 percent of district governments' health expenditure and only 3.7 percent of the provincial government's health expenditure (Figure 8). Figure 8. Regional health expenditure trends, 2002-05 (L), and sub-national economic classi cation (R) of health spending, 2005 320 10.9 12 10.6 (Shares %) Gorontalo Indonesia 280 10 Districts Province Districts Province 240 7.9 prices) Wages 39.5 57.3 56.1 44.7 6.9 8 200 2005 Goods and 24.4 23.6 23.6 25.0 160 6 % 281 Services 120 4 Travel 0.7 9.2 1.4 7.1 (constant 80 159 bn 114 Maintenance 2.2 3.7 3.9 5.4 2 40 Rp 63 Capital 33.2 6.2 14.5 17.9 0 0 Other 0.0 0.0 0.6 0.0 2002 2003 2004 2005 Total 100 100 100 100 Health expenditures Share of total expenditures Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Economic classi cation gures are for 2005. Poor health outcomes are a cause for concern, despite relatively good access to facilities. Gorontalo is failing to achieve important health outcomes. For instance, Gorontalo has not achieved the 90 percent immunization target set by the Ministry of Health. Also, fewer than two out of three pregnant women give birth in the presence of a quali ed birth attendant, the fth lowest level in Indonesia. Nonetheless, compared with other regions Gorontalo has relatively good access to doctors, with a relatively high ratio of doctors to population and more doctors per service area. Access to doctors is slightly higher than the national average, while access to midwife services is the second highest in the Service Delivery and Financial Management in a New Province 7 EXECUTIVE SUMMARY Gorontalo Public Expenditure Analysis country. Despite this relatively high level of access to healthcare services, Gorontalo's poor performance in health indicators could be the result of insu cient resources being allocated to programs that target speci c health issues, such as immunization, utilization and morbidity rates, and preventing or treating health threats. Agriculture Deconcentrated spending is the main source of funding for agriculture, sheries, and forestry and its relative importance is increasing. Total regional expenditure (district, province and deconcentrated) on the agriculture, sheries and forestry sub-sectors (AFF) more than tripled between 2002 and 2005. However, sub-national expenditures (district and province) increased by only 12 percent over the same period, showing the majority of the increase in spending was driven by deconcentrated expenditure. Allocations in 2006 suggest that total regional expenditure will continue to increase signi cantly if previous levels of deconcentrated spending are maintained. Productivity in agriculture is increasing. Although productivity of sweet potato has decreased, the productivity of other crops (corn, rice, nuts and soybean) has improved since 2002. Investment aimed at improving the productivity of corn cultivation has been successful, with productivity increasing almost 30 percent in the four years to 2005. While there is still room for further gains, corn productivity in Gorontalo is now higher than the national average (Figure 9). Meanwhile, corn exports have increased almost sevenfold since 2002, from 6.7 to 52.2 tons (Dinas Pertanian, 2005). Figure 9. Corn productivity is increasing, 2002-05 50 46 44 45 45 45 45 43 43 40 37 35 ) 31 32 35 30 33 31 29 (100kg/Ha 20 Productivity 10 0 2002 2003 2004 2005 Rice Gorontalo Rice Indonesia Corn Gorontalo Corn Indonesia Source: World Bank sta calculations based on Dinas Pertanian data. Public Financial Management Since 2001, the provincial government has succeeded in rolling out key public nancial management (PFM) reforms. These include: (i) merging the Finance Bureau and the Revenue Unit into one comprehensive Financial Management Unit (Badan Keuangan Daerah, or BKD); (ii) improving PFM processes by streamlining the bureaucracy; and (iii) improving human resources and institutional capacity. In general, the province and its districts are relatively strong in accounting and reporting, and internal auditing, as well as external auditing and supervision. Gorontalo's local governments perform well in accounting and reporting, internal auditing, and external auditing and supervision (World Bank, 2007d). At the provincial level, this is a positive outcome of the policy to recruit o cials with PFM expertise combined with structural and functional reforms. External audit and supervision scores re ect the success of the provincial government in reporting their budgets on time and their excellent ratings in BPK audits. However, district governments have not kept pace with the reform initiatives instigated by the provincial government. 8 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis EXECUTIVE SUMMARY Figure 10. Consolidated PFM results for Gorontalo Regulatory framework 100% External audit and supervision 80% Planning and budgeting 60% 40% Asset management 20% Cash management 0% Debt and public investment Procurement Internal monitoring Accounting and reporting Source: World Bank sta calculations based on PFM survey results, 2007. Current reform initiatives have still to be strengthened by regional regulations and have so far been driven primarily by the provincial government where PFM capacity is concentrated. The current reform initiatives will only prove sustainable if they are consolidated by regional regulations into a regulatory framework. However, this regulatory framework should also provide adequate exibility for future initiatives, as there are still areas where considerable progress can be made. For instance, overall asset management registered the lowest score out of the eight strategic areas of PFM not including regulatory framework. Capacity remains concentrated at the provincial level, but even here the working units responsible for producing nancial reports have limited PFM capacity. Currently, the BKD takes an active role in producing such reports, despite the fact that all the working units should now produce their own reports, which the BKD should then collect and consolidate. Civil Service and Administrative Reforms Reforming the bureaucracy is key to improving service delivery outcomes. This is particularly important in the current context of institution building: increasing the number of civil servants at both the provincial and district levels inevitably complicates the process of bureaucratic reform. However, as a newly created province, both the provincial and district levels need additional personnel. This is re ected in the increase in the number of civil servants: since 2002, numbers at the provincial level have doubled while districts have seen a 25 percent increase in the headcount. Building capacity is the main challenge facing Gorontalo in reforming its administration and streamlining governance arrangements. As the number of civil servants increases, so Gorontalo needs to develop the skills not only of the new civil servants, but also of existing sta . Both newly recruited and longer-standing civil servants can be transferred from the districts to the provincial level for training, or newly recruited civil servants can be trained in the districts or working units (SKPD). Service Delivery and Financial Management in a New Province 9 EXECUTIVE SUMMARY Gorontalo Public Expenditure Analysis Agenda for Implementation Policy-makers in Gorontalo can take advantage of the opportunities stemming from increasing scal resources and the roll-out of governance reforms to promote the province's development. The three most important challenges involve: (i) improving budget e ectiveness; (ii) improving service delivery; and (iii) improving capacity and participation. Improving budget e ectiveness Improve coordination between levels of government to avoid overlapping activities, especially on decentralizedtasks. Theprovincialgovernmentshouldplayanactivecoordinatingrolebetweencentralgovernment and districts governments. For the districts, the provincial government can provide advice on more e cient spending, if needed, and also better adapt its own supportive spending to avoid duplicating districts'responsibilities or initiatives. Moreover, high levels of deconcentrated expenditure increases the risk of crowding out sub-national spending. Minimize spending on government administration and allocate higher shares to basic services and pro-poor programs. In developed economies, spending on government administration is usually less than 5 percent (World Bank, 2007a). Gorontalo's provincial and district governments should aim to minimize their spending on government administration, especially now that the newly created districts (with the exception of Kabupaten Gorontalo Utara) are well established. Improving service delivery Improve access to electricity, sanitation and safe water. Improving access to electricity, sanitation and safe water will be crucial in raising Gorontalo's socio-economic standards. This is especially the case regarding access to these services for lower income groups. Increase allocations for the maintenance of the infrastructure, health, and education sectors. While it is important to expand sectoral facilities/infrastructure in Gorontalo, it is even more important to ensure that the existing infrastructure is maintained to maximize the life of the assets. The rate of return from investing money in maintenance is far higher than that for new capital investments. Improve the education spending mix. There is a case for improving the spending mix by adjusting allocations between the various education programs, for instance primary, junior secondary and senior secondary. Now that primary school enrollment rates are catching up with other regions and approaching full coverage, capital spending priorities in primary education should include improving education infrastructure and raising the quality of teaching and teaching methods. Maintain the proportion of total expenditure spent on infrastructure while increasing the allocation for maintenance. The trend towards increasing infrastructure spending as a share of sub-national spending reversed in 2005, although total nominal expenditures continued to rise. Both the districts and the province reduced their share of infrastructure spending in 2005, although this decline was reversed in 2006. In future years, allocations for infrastructure need to be maintained. Increase the allocation of health spending for programs that target speci c health issues, such as immunization, utilization and morbidity rates, and the prevention or treatment of health threats. It is important that Gorontalo's provincial and district governments design and implement programs to improve health outcomes across the province. Increase spending e ciency by improving the allocation of agriculture expenditure. Disparities in district agriculture expenditure highlight the need to reallocate resources according to economic classi cations. Allocation of spending highlights a need to move away from expenditures on physical infrastructure and towards human resource development. 10 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis EXECUTIVE SUMMARY Improving capacity and participation Improve PFM through strengthening the regulatory framework and capacity building at both the provincial and district levels. The provincial government and district governments should complete preparation of a regulatory framework to regulate the budgeting cycle in a consistent and e ective way. Such a framework will help to provide a more systematic approach towards PFM reforms. At the same time, there is a need to provide capacity building for middle- and lower-level o cials in order to close the capacity gap with higher-ranking o cials, in particular in PFM. Take a more proactive approach in rolling out the reform agenda to the districts. One of the problems of bureaucratic reform in Gorontalo is that it is only occurring at the top level within the provincial government. The impacts of such reform will only be maximized if the districts are included. Moreover, the province should provide clear information on innovations that have taken place, both to o cials at the provincial and district levels and to wider stakeholders. The information should include all aspects of the innovations, including the background, objectives, impacts and mechanisms. This will serve as a consultative mechanism to gather inputs on the innovations and also win wider stakeholder buy-in. After this process, the innovations should be supported with relevant regional regulations to strengthen their legal status. Service Delivery and Financial Management in a New Province 11 EXECUTIVE SUMMARY Gorontalo Public Expenditure Analysis 12 Service Delivery and Financial Management in a New Province Chapter 1 Overview Gorontalo Public Expenditure Analysis CHAPTER 1 Overview Gorontalo Public Expenditure Analysis The History GorontaloislocatedinnorthernIndonesiaandisseparatedfromMalaysiaandthePhilippinesbytheSulawesi Sea. The province spans the northern arm of the Sulawesi peninsula, with Tomini Bay to the south and the Sulawesi Sea to the north (Figure 1. 1). The west of the province borders Central Sulawesi, while the east shares a border with North Sulawesi. This location has been advantageous to the region, allowing it to develop a strong local cultural and religious identity well before Dutch colonization. During the period prior to the arrival of European colonizers, Gorontalo became one of the main centers of Islam, trade and education in eastern Indonesia, together with Ternate and Bone. Until 2000, Gorontalo was one of the districts comprising the province of North Sulawesi. Figure 1.1. Key facts about Gorontalo Area 13,533 km2 (BPS, 2006) Population 941, 444 (BPS, 2006) Poverty headcount 28.9% (BPS, 2004) Real GRDP per capita 2,226,479 (BPS, 2005) Number of districts 6 : 1 kota, 5 kabupaten (2007) Date of independence January 23, 1942 Formalized as province Law No. 38/2000 (The new governor was inaugurated on 16 February 2001.) Due to its strong historical, religious and cultural identity, there was longstanding pressure in Gorontalo to separate from North Sulawesi. The city of Gorontalo is one of the oldest cities in Sulawesi, with records dating back to the 16th century. Gorontalo also had its own independent government for more than two years after declaring independence from the Dutch on January 23, 1942, although the region joined the new Republic of Indonesia after President Soekarno declared independence in August 1945. Given its long history, traditional law (adat) is still applied in Gorontalo and the region is recognized as one of the 19 unique adat regions in Indonesia.2 2 See Law No. 11/2007 on the establishment of Kabupaten Gorontalo Utara. Kabupaten Gorontalo Utara was established in January 2007 as a new district apart from Kabupaten Gorontalo. In this report, given the lack of data, Kabupaten Gorontalo Utara is still considered as part of Kabupaten Gorontalo. 14 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 1 Overview One further important reason behind the desire for a separate province was the disparity between the then district of Gorontalo and the rest of North Sulawesi. Gorontalo had a far higher poverty level than the rest of North Sulawesi. Similarly, access to basic services and general living standards were sigini cantly lower compared with the relatively prosperous districts of North Sulawesi. As a consequence, citizens of Gorontalo felt that by becoming a separate province more attention and resources would be directed towards improving basic services than if they remained under the jurisdiction of a provincial government based in Manado, North Sulawesi. In late 2000, Gorontalo separated from North Sulawesi and became Indonesia's 30th province.3 Gorontalo was the fourth new province created under decentralization, following North Maluku, Banten and Bangka-Belitung. In 2000, Gorontalo consisted of just three districts/cities: Kota Gorontalo, Kabupaten Gorontalo, and Kabupaten Boalemo. In 2003, two additional districts were established: Kabupaten Pohuwato from Kabupaten Boalemo and Kabupaten Bone Bolango from Kabupaten Gorontalo. The latest addition is Kabupaten Gorontalo Utara, which was formalized in early 2007. The Economy Gorontalo has a relatively small economy with one of the lowest per capita GRDPs in Indonesia. Average income per capita is only one third of the Indonesian average and half that of eastern Indonesia and Sulawesi (Figure 1. 2). With Gorontalo's economy still at an early stage of development, economic activity is largely still based on agriculture, forestry and sheries. Given that the value-added from these activities is relatively low compared with manufacturing or services, Gorontalo's per capita GRDP is also relatively low. Although it has seen some improvement, ve years after decentralization Gorontalo's per capita GRDP is still well below national, eastern Indonesia, and even Sulawesi levels. Despite its modest size, Gorontalo's economy is one of the fastest growing in Indonesia. When the nancial crisis struck Indonesia in 1997, Gorontalo's economy went into recession, although not to the same degree as seen nationally or in Sulawesi. In 1999, the region's economy started to bounce back and since then it has been growing faster than the rest of the country. However, most of this growth is driven by increased regional government expenditure resulting from large additional scal transfers from the central government, raising questions over the longer-term sustainability of this growth. Nonetheless, since decentralization, Gorontalo has experienced one of the highest and most stable average growth rates in Indonesia, in the range of 6 to 7 percent per annum. By 2005, only Papua had experienced overall higher economic growth (Figure 1. 2). Despite Gorontalo's strong growth, it will be some considerable time before per capita GRDP catches up with the rest of Indonesia. While recent economic growth has been consistently strong, Gorontalo is expanding from a low base. Furthermore, economic growth will have to come from increasingly vibrant local economic activity if it is to remain sustainable in the longer term. It therefore remains a major challenge for Gorontalo to start to improve its provincial ranking based on GRDP per capita (Figure 1. 2). 3 Law No. 38/2000 on the establishment of Gorontalo province. Service Delivery and Financial Management in a New Province 15 CHAPTER 1 Overview Gorontalo Public Expenditure Analysis Figure 1.2. Despite its small size, Gorontalo's economy is growing fast 10 8 million) (Rp 6 capita per 4 GRDP Real 2 0 2000 2001 2002 2003 2004 2005 National Eastern Indonesia Sulawesi Gorontalo 14 12 10 8 (%) 6 growth 4 GRDP 2 Real 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 -2 -4 -6 National East Indonesia Sulawesi Gorontalo Source: World Bank sta calculations based on BPS data. Compared with other sectors of the local economy, agriculture4 is the largest contributor. The structure of Gorontalo's economy has changed little since 2000, with agriculture continuing to contribute around one third of the province's GDP. Meanwhile, trade and manufacturing are the second and third largest contributors to the local economy, respectively (Figure 1. 3). 4 Agriculture sector includes agriculture, forestry, and sheries. 16 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 1 Overview Figure 1.3. Agriculture is the largest contributor to the economy 2,500 1,000 855 879 783 754 ) 2,000 750 689 639 prices) prices 1,500 2005 capita, 2000 Wage, per 500 Real GRDP (constant 1,000 (constant bn `000, Rp 250 Rp 500 - - 2000 2001 2002 2003 2004 2005 2006 Agriculture Mining and Quarrying Manufacturing Electricity, Gas & Water Supply Construction Trade, Restaurant & Hotel Transportation and Communication Financial Services Services real wage Source: World Bank sta calculations based on GRDP and Sakernas (BPS). Agriculture5 still absorbs more than half the workforce in Gorontalo. While the population of the province increased from 847,000 in 2000 to 941,000 in 2006, the total size of the workforce in agriculture declined by around 8 percentage points over this period. Agriculture's share of the total workforce fell from from 63 percent in 2001 to 55 percent in 2006 (Figure 1. 4). Figure 1.4. Half of Gorontalo's workforce is in agriculture 400 100 300 75 63 56 62 (%) 55 ('000) 51 48 force, 200 50 force, Agricultural Work Work Others (L) Manufacturing (L) 100 25 Public/social/personal service (L) Trade (L) Agriculture (L) 0 0 Agriculture workforce (%) (R) 2001 2002 2003 2004 2005 2006 Source: World Bank sta calculations based on Sakernas. Gorontalo is facing a complex unemployment problem not only due to its high level but also because of its volatility. From 2002 to 2005, the unemployment rate in Gorontalo was far higher than national and eastern Indonesia levels (Figure 1. 5). In 2006, however, the rate declined signi cantly from over 14 percent to less than 8 percent. Compared with national and eastern Indonesia unemployment rates, which are relatively stable, Gorontalo's 5 The agriculture sector covers agriculture (including plantations), forestry, and sheries. Service Delivery and Financial Management in a New Province 17 CHAPTER 1 Overview Gorontalo Public Expenditure Analysis rate uctuates markedly as seen in 2005-06. This is possibly related to the large share of the agriculture workforce, and the size of the informal sector within that workforce, whose members lack job security and may be forced to move in and out of work frequently (Annex E.5). However, this is at odds with recent economic growth and suggests a need for more detailed research. Figure 1.5. Unemployment in Gorontalo is higher than other regions 16 National Gorontalo Eastern 14 Indonesia 12 (%) 10 rate 8 6 Unemployment4 2 0 2001 2002 2003 2004 2005 2006 Source: World Bank sta calculations based on Sakernas. Real wages in Gorontalo decreased by 22 percent in 2005 due to the sharp increase in fuel prices.6 Those working in agriculture, mining and excavation, together with those working for electricity, gas and water service providers, experienced the largest reductions in spending power (Annex E.4). Prices in Gorontalo are similar to other cities in Sulawesi. Price levels are consistent with national levels and those of other cities in Sulawesi, such as Manado and Makassar (Figure 1. 6). Similar to other regions, the increase in fuel prices in 2005 caused a spike in in ation, with year-on-year in ation rising to 20 percent in February 2006. Based on the 2007 Construction Price Index (Indeks Kemahalan Konstruksi), Gorontalo's in ation rate is fourteenth out of 33 provinces and the third highest in Sulawesi behind North Sulawesi and Southeast Sulawesi (Annex E.6). Figure 1.6. In ation in Gorontalo is similar to other regions 25 National Manado 20 Makassar Gorontalo 15 10 5 0 Jan-04Mar-04May-04Jul-04Sep-04Nov-04Jan-05Mar-05May-05Jul-05Sep-05Nov-05Jan-06Mar-06May-06Ju l-06 -06 Sep Nov-06Jan-07Mar-07May-07Jul-07 Source: World Bank sta calculations based on BPS. 6 Sakernas 2005 eld survey took place in September 2005, several months after the government's rst reduction of fuel subsidies in April 2005 (but just prior to the largest cuts in October). 18 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 1 Overview Challenges and Opportunities in the Economy As the main economic activities, agriculture, forestry and sheries still o er potential for growth. The total potential area available for agriculture is 464,000 ha, of which about 38 percent has already been utilized. Agricultural productivity on this land area can still be improved. In addition, forest covers an area of around 800,000 ha, of which some 20 percent is classi ed as protected forest, while the remaining 80 percent is available for utilization. Meanwhile, Gorontalo has almost 600 km of coastline and around 40,000 km2 of maritime Exclusive Economic Zone (Zona Ekonomi Eksklusif, or ZEE), endowing the sheries and marine resources sector with considerable potential to drive economic growth (Marsuki, 2006a). In addition to making improvements in agricultural productivity, Gorontalo can also bene t from exploring value-added activities to process its agricultural materials. Current strategies are mainly focused on producing raw materials rather than processed agricultural commodities, with the result that value-added remains low. Processing commodities and increasing their sales value would assist in increasing Gorontalo's revenue. Aware of the challenges facing Gorontalo, the provincial government is focusing on realizing the potential of the agriculture sector, both by improving productivity and developing value-added activities. Given the signi cant potential to develop the local economy that lies within the agriculture sector, the provincial government has developed three strategies for economic development based on expanding agriculture, sheries and marine resources as the leading sub-sectors. The rst strategy involves the implementation of an agropolitan concept as the icon of agriculture-based economic development. The message supporting the agropolitan concept is that as a major sector of the local economy agriculture has signi cant potential to develop both rural and urban areas. In the case of Gorontalo, the focus of the agropolitan concept is on developing the cultivation of, and market more, corn. The second strategy involves the intensi cation of shery-related activities by adopting co-management and production- sharing systems between shermen, sh-farmers and the wider community. The third strategy involves developing coconuts as a commodity through widespread small-scale coconut-based agribusinesses (Marsuki, 2006b). Focusingoncornasaspecialtyagriculturecommoditywillbechallengingandrequiresigni cantcommitment and investment if it is to succeed. Unlike sh or coconuts, which are longstanding commodities of Gorontalo's local economy, the provincial government has only recently introduced corn production. The policy of introducing corn cultivation includes investing in infrastructure and facilities, and providing land for corn cultivation by converting farmland from other agricultural products or utilizing uncultivated land. The discourse on the advantages and disadvantages of specialty agriculture is ongoing. The advantages include: utilizing land unsuited to conventional agriculture; supplying niche or specialty markets, thereby securing higher margins with e ective marketing; and providing opportunities to stimulate the local economy by creating additional employment and making use of resources not normally utilized. However, the disadvantages of corn cultivation include high initial input costs and more sophisticated marketing approaches, amongst others.7 Poverty and Social Conditions In 1999, when Gorontalo was still a district of North Sulawesi, the region had a poverty rate of 49 percent. This poverty rate was he highest in Indonesia at the time, and more than double Indonesia's average poverty rate in 1999 of 23 percent. In the same year, the gap between Gorontalo's poverty rate and the district average for North Sulawesi of 19 percent, excluding (then) Kabupaten Gorontalo, was even wider (Annex E.2). Since decentralization, poverty in Gorontalo has started to decline but the province remains one of the poorest in Indonesia. By 2004, Gorontalo's poverty rate had fallen 20 percentage points to 29 percent. This decline in poverty was in line with the general trend across Indonesia, as the national economy recovered from the 1997 nancial crisis. Currently, Gorontalo has the third highest poverty rate, lower than only Papua and Maluku, and slightly higher than Nanggroe Aceh Darussalam. Gorontalo's current poverty rate is still more than three times higher than the district average for North Sulawesi, which is one of the lowest rates in Indonesia at 9 percent (Annex E.2). 7 Agriculture division of University of Arkansas (http://www.aragriculture.org/specialty/) Service Delivery and Financial Management in a New Province 19 CHAPTER 1 Overview Gorontalo Public Expenditure Analysis Largediscrepanciesexistinpovertylevels,literacyratesandsecondarynetenrollmentratesbetweendistricts in Gorontalo (Table 1. 1). Such wide discrepancies are found nationally in cases where a province's economy is based primarily on agriculture (World Bank, 2007a). This is partly because over 55 percent of all employment is in the agricultural sector and over 86 percent of agricultural sector jobs are informal. Table 1.1 Inequality in Gorontalo Indicator Gorontalo National Highest Lowest Average Highest Lowest Average GRDP per capita (Rp million, 2005) 5.2 2.8 3.7 407.3 0.9 12.6 Poverty rate (2004, %) 32.5 10.8 28.9 51.0 2.9 16.7 Adult literacy rate (2006, %) 83.1 60.0 70.8 99.3 7.3 71.5 Secondary net enrollment rate (2006, %) 67.9 39.3 46.2 90.4 8.2 57.8 HDI (2005) 70.4 65.9 67.5 77.4 46.9 69.6 Source: World Bank sta calculations based on BPS, Bappenas. 20 Service Delivery and Financial Management in a New Province Chapter 2 Revenue and Financing Gorontalo Public Expenditure Analysis CHAPTER 2 Revenue and Financing Gorontalo Public Expenditure Analysis Overall Revenue Picture Gorontalo has bene ted from becoming an autonomous region in a decentralizing Indonesia. Gorontalo became an autonomous region in late 2000 (Law No. 38/2000) and received its own budget in early 2001, the year when decentralization took e ect. Intergovernmental scal transfers that consist of shared revenue from taxes and natural resources, the General Allocation Fund (DAU) and the Special Allocation Fund (DAK), replaced the pre- decentralization system of earmarked grants.8 On average, Indonesia's provinces and districts/cities have experienced an increase of more than 200 percent in their revenues since decentralization. Gorontalo's total scal revenue per capita rose more than 400 percent from about Rp 400,000 in 1998 to just over Rp 1.6 million in 2006 (Figure 2. 1). In 2006, Gorontalo's total scal revenue per capita ranked fourteenth out of (then) 32 provinces in Indonesia and was the third highest in Sulawesi after Central Sulawesi and Southeast Sulawesi (Annex E.7). Figure 2.1. Gorontalo's scal resources have increased signi cantly 1,800 1,600 1,400 1,200 '000pR1,000 800 600 400 200 0 1998 1999 2000 2001 2002 2003 2004 2005 2006* Own Source Revenue Shared Taxes Shared Nat Resources Autonomous Region Subsidy/SDO (Development) Presidential Grants/INPRES DAU DAK Other Balancing Fund Other Revenue Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Data are in real terms at constant 2005 prices. Consolidated provincial and district/city scal revenue per capita. Central transfers both pre- and post-decentralization have dominated Gorontalo's scal resources. Before decentralization, Gorontalo's scal resources were mainly central transfers in the form of the Autonomous Region Subsidy (SDO) and Presidential Grants (Inpres). Since decentralization, the DAU and the DAK have replaced SDOs and Inpres, and have come to dominate the scal resources available to Gorontalo, both at the provincial and district/city levels. Since decentralization, the DAU has become the largest contributor to sub-national revenue. In the scal year following the establishment of the province in 2001, the DAU accounted for 81 percent of the province's revenue and 82 percent of consolidated district/city revenues. In 2006, the DAU accounted for about 89 percent of the province's total budget and 77 percent of consolidated district/city budgets. The province's own-source revenue (PAD) was the second-largest source of revenue (11 percent), followed by shared tax revenue (1 percent). For districts/cities in 2006, the second largest revenue item was the DAK, at 10 percent, followed by own-source revenue and tax revenue sharing, both at 5 percent (Table 2. 1). 8 Pre-decentralization earmarked grants consisted of: (i) subsidy for autonomous regions (Subsidi Daerah Otonom, or SDO), and (ii) Presidential Instructions (Instruksi Presiden, or Inpres). SDO was used to nance recurrent expenditures. The amount was larger than Inpres grants. Inpres served an array of speci c purposes from re-greening to the construction of schools and public markets, was used to nance development expenditures. 22 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 2 Revenue and Financing The DAK is growing in signi cance for Gorontalo's districts. When seen in comparison with the DAU, DAK transfers appear relatively modest. However, DAK transfers for districts/cities grew more than 13 times between 2002 and 2006, making the DAK the most rapidly growing source of revenue. The DAK is now the second largest source of revenue for districts/cities, accounting for 10 percent of their total revenues in 2006 (Table 2. 1). Table 2.1. Gorontalo's scal revenue composition, 2002-06 2002 2003 2004 2005 2006* Province Rp bn % Rp bn % Rp bn % Rp bn % Rp bn % DAU 157.05 81 210.55 79 231.71 82 211.01 78 340.80 89 Own-Source Revenue 31.08 16 41.94 16 41.59 15 46.11 17 40.70 11 Shared Tax Revenue 6.04 3 7.23 3 7.58 3 12.99 5 3.57 1 DAK 0.00 0 5.61 2 0.00 0 0.00 0 0.00 0 Shared Natural Resource Revenue 0.46 0 0.32 0 0.72 0 0.08 0 0.00 0 Other Revenue 0.00 0 0.25 0 0.00 0 0.04 0 0.00 0 Total 194.63 100 265.90 100 281.60 100 270.24 100 385.07 100 2002 2003 2004 2005 2006* Districts/Cities Rp bn % Rp bn % Rp bn % Rp bn % Rp bn % DAU 478.46 82 558.80 78 559.96 74 569.46 72 825.53 77 DAK 13.66 2 26.94 4 48.60 6 56.74 7 103.00 10 Own-Source Revenue 31.13 5 48.70 7 49.32 6 45.91 6 52.80 5 Shared Tax Revenue 37.53 6 29.76 4 53.55 7 57.29 7 57.92 5 Shared Tax and Assistance from Province 0.00 0 10.40 1 11.88 2 12.17 2 11.01 1 Other Revenue 11.37 2 24.05 3 23.14 3 34.48 4 14.58 1 Shared Natural Resource Revenue 3.57 1 1.85 0 3.26 0 3.59 0 3.19 0 Adjustment Fund 4.26 1 20.31 3 12.08 2 10.90 1 0.00 0 Total 579.98 100 720.80 100 761.80 100 790.53 100 1,068.04 100 Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Data are in real terms at constant 2005 prices. * 2006 data are budget gures. The city of Gorontalo (Kota Gorontalo) has the strongest scal position of all the districts in Gorontalo. On a per capita basis in 2005, Kota Gorontalo received twice the revenue of Kabupaten Gorontalo. In addition to the DAU, Kota Gorontalo has far higher own-source revenue per capita than other districts in the province. This is not such a surprise, given the higher number of businesses and services liable for taxation that fall under the jurisdiction of the city. Notable also is the fact that the two new districts of Pohuwato and Bone Bolango now have higher combined scal revenues than their original mother district, Kabupaten Gorontalo. Service Delivery and Financial Management in a New Province 23 CHAPTER 2 Revenue and Financing Gorontalo Public Expenditure Analysis Figure 2.2. Revenues of Gorontalo's districts, 2005 1,400 1,200 1,000 800 '000 Rp 600 400 200 0 Gorontalo Bone Bolango Boalemo Pohuwato Kota Gorontalo Ow n Source Revenue Shared Tax Revenue Shared Natural Resource Revenue DAU DAK Shared Tax Revenue and Assistance from Prov Adjustment Fund Other Revenue Source: Gorontalo PEA database, University of Gorontalo. Note: Fiscal revenue realization per capita by district in Rp '000. Compared with other provinces established since decentralization, Gorontalo has the lowest level of scal resources. In 2005, Gorontalo's total sub-national revenue (province and districts combined) was the lowest of all those provinces created since decentralization (Figure 2. 3).9 Banten had the highest total revenue in 2005, although its large population meant that this translated into the lowest revenue per capita. Gorontalo's per capita revenue was the second lowest compared with other new provinces. Papua had by far the highest level of revenue per capita, almost twice as high as North Sulawesi, which lies in second place. Gorontalo's dependency on the central government is relatively high: in 2005, 80 percent of its revenue came from central government transfers. This level of dependence was second only to North Maluku, which relied on central government transfers for over 90 percent of its revenues over the same period. Figure 2.3. Gorontalo's sub-national scal resources are the weakest among new provinces 4,500 6,000 4,000 5,000 3,500 revenues Transfers per capita (L) atipacr 3,000 4,000 )n b '000) pR( Others per capita(L) pe 2,500 (Rp 3,000 PAD per capita (L) 2,000 nueeveRla Total Sub national Sub-national 1,500 2,000 Tot revenue (R) 1,000 1,000 500 - en ng rat nt talo Utara .Riau Ba ron litu iBarat Be es Go uku Kep puaBa ngka law Pa Mal Su p.Ba Ke Source: World Bank sta estimates based on SIKD, 2005. 9 The seven provinces created post decentralization are North Maluku, Bangka Belitung island, Banten, Gorontalo (2001), Riau island and West Papua (2004), and West Sulawesi (2005). 24 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 2 Revenue and Financing The General Allocation Grant (DAU) The DAU is the largest instrument among Indonesia's inter-governmental scal transfers and aims to equalize theimbalancesbetweendi erentlevelsofgovernment central,provincial,anddistrict/city. The total national DAU pool is now 26 percent of net national revenue (net of shared revenue), of which 10 percent goes to provincial governments and 90 percent goes to districts/cities. The DAU is distributed annually using a formula that consists of a basic allocation (BA) component and a scal gap (FG) component. Starting in 2006, the basic allocation component of the DAU covers the full wage bill of all sub-national governments (provincial and district governments). The BA component is allocated rst and the remainder is distributed using the scal gap formula. The FG component is calculated as the di erence between scal capacity (FC) and expenditure needs (EN), and is allocated to districts pro rata of their scal gaps (World Bank, 2007a). The DAU is currently Gorontalo's largest source of revenue. Since 2002, the DAU has been the largest component of Gorontalo's sub-national revenue. In the period since 2002, the share of the DAU as a component of provincial revenue has increased from 81 percent to 89 percent. Conversely, at the district/city level the share of the DAU has declined, although the nominal level of DAU revenue has increased. This is mainly because of the signi cant increase of the DAK over the same period. In 2006, the DAU covered almost 90 percent of provincial revenue and almost 80 percent of district level revenue (Table 2. 1). Similar to other regions, Gorontalo experienced a signi cant increase in DAU transfers in 2006. As a result of the major reduction in oil subsidies in 2005, average DAU transfers to sub-national governments increased by 65 percent in the 2006 scal year. On a real per capita basis, Gorontalo's total DAU increased more than 68 percent in the period 2002-06. At the provincial level, DAU transfers per capita increased 99 percent, from Rp 184,303 to Rp 366,563. At the district level, DAU transfers per capita increased 58 percent, from Rp 561,485 to Rp 887,935 (Figure 2. 4). During this period, more than 70 percent of the DAU received by Gorontalo was allocated to the districts/cities. Figure 2.4. Gorontalo's DAU per capita increased signi cantly in 2006 1000 900 888 800 700 626 (Rp'000) 600 633 624 561 capita 500 per 400 367 DAU 300 200 239 258 232 184 100 0 2002 2003 2004 2005 2006 Province Kabupaten/Kota Source: Gorontalo PEA database, University of Gorontalo. Note: Data are in real terms at constant 2005 prices. Data for 2006 are planned / allocation data DAU allocations varied signi cantly between districts, probably due to di ering civil service wage bills. Figure 2. 5 illustrates how the DAU was distributed across districts in Gorontalo relative to their scal gaps per capita and civil service wage bills per capita in 2005 and 2006.10 The DAU allocation seems to be correlated with the size of a district's wage bill. However, in some cases the scal gap component compensates for a low wage bill. Kabupaten Pohuwato bene ts from having the largest area and the highest construction cost index.11 10 The Fiscal Gap is calculated based on the DAU 2006 formula (FG = Expenditure Needs (EN) ­ Fiscal Capacity (FC)). 11 Area and the cost of construction index are included in Expenditure Needs calculation. Service Delivery and Financial Management in a New Province 25 CHAPTER 2 Revenue and Financing Gorontalo Public Expenditure Analysis Figure 2.5. Distribution of DAU relative to scal gap and wage bill, 2006 3.0 2.0 1.8 2.5 1.6 1.4 2.0 1.2 1.5 1.0 million million Rp 0.8 Rp 1.0 0.6 0.4 0.5 0.2 0.0 0 Gorontalo Boalemo Bone Bolango Kota Gorontalo Pohuwato DAU 2005 PC DAU 2006 PC Wage Bill PC Fiscal Gap PC Source: World Bank sta estimates based on Gorontalo PEA database, University of Gorontalo, 2007, and DAU 2006 basic data, MoF, 2006. Note: Data in nominal terms. Data for 2006 are for allocations, not realization. The Special Allocation Fund (DAK) The DAK is an earmarked or conditional transfer aimed at nancing speci c needs in the regions or programs that are national priorities and not covered by the DAU. The DAK is nanced from the central government budget (APBN) and is transferred directly to district governments based on project progress. Unlike the DAU, districts are required to provide matching funding from their own APBDs at a minimum of 10 percent of the project budget, except for those regions with limited scal capacity. This ensures that district governments make provisions for operational costs. Three criteria determine the allocation: (i) general criteria related to the net scal position of a district;12 (ii) special criteria, which determine eligibility based on coastal area size, con ict and under-development; and (iii) technical criteria, which are set by sectoral departments in the central government in consultation with the MoF and MoHA (World Bank, 2007c). At the national level, both the amount and the sectoral coverage of the DAK have increased. In the four years since the start of decentralization in 2001, the DAK tripled from less than Rp 1 trillion in 2001 to Rp 3.9 trillion in 2005. In the rst two years of decentralization, the DAK was used mainly for reforestation. Starting in 2003, the DAK was used to promote priority sectors, such as education, health and local infrastructure (roads and irrigation), and to build government o ce buildings for newly created local governments. In 2006, the DAK was focused on developing the infrastructure of basic services and its coverage was expanded to include new local infrastructure (potable water), sheries, agriculture and the environment (World Bank, 2007a). Gorontalo's DAK has increased signi cantly and is currently mostly used to nance road construction, education and health. Gorontalo's DAK is mostly allocated to the districts, the only exception being a 2003 allocation to the province. Since 2002, the amount of the DAK allocated to districts in Gorontalo has increased signi cantly. The DAK trend in Gorontalo is consistent with the DAK trend at the national level, increasing from only Rp 13 billion in 2002 to more than Rp 100 billion by 2006. The average share of DAK allocations in total district revenues increased from only 2 percent in 2002 to 10 percent in 2006. Road construction now receives 24 percent of the DAK, followed by education and health, each with about 23 percent (Figure 2. 6). 12 Subtracting civil servants'salaries from total revenue and dividing the total by the national average calculate net scal position. 26 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 2 Revenue and Financing Figure 2.6. DAK allocations by sector, 2006 Government Environment 4% 1% Agriculture 10% Education Fisheries 23% 5% Water supply and sanitation 5% Irrigation 5% Health 23% Roads 24% Source: MoF. The DAK has served to boost per capita revenues in newly created districts. The signi cant increase in the DAK has gone largely to the newly created districts. On a per capita basis, the DAK of the two newest districts, Kabupaten Bone Bolango and Kabupaten Pohuwato, more than doubled (Figure 2. 7). These higher DAK allocations boosted both revenues and expenditures in the new districts, as the revised decentralization law (Law No. 33/2004) stipulates that any DAK allocation made by the central government must be accompanied by funding from the local government. With the funding from district governments set at a minimum 10 percent of the total DAK allocation, this acts as a driver of district level expenditure. Figure 2.7. DAK boosted per capita revenues of newly created districts 250 200 150 '000 Rp 100 50 0 Gorontalo Kota Gorontalo Boalemo Bone Bolango Pohuwato DAK PC 2005 DAK PC 2006 Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Data are in nominal terms. Data for 2006 are planned. Shared Revenue At the national level, the second largest transfers to sub-national governments are shared revenues. There are two sources of shared revenues: taxes/fees and natural resources. Shared revenues from taxes/fees mainly accrue from land and building taxes (PBB), land and building transfer fees (BPHTB), and personal income tax (PPh). According to the sharing arrangements stipulated in Law No. 33/2004, district governments receive allocations of 81 percent, 80 percent, and 20 percent shares of PBB, BPHTB, and PPh, respectively. For natural resource shared revenue, Law No. 33/2004 expanded coverage to include the forestry, general mining, sheries, oil, gas, and geothermal sectors. Sub- national governments retain 80 percent of all revenues from shared natural resources, except for oil and gas where the central government retains a larger share.13 13 For detailed sharing arrangements between central, provincial, and district governments, see Law No. 33/2004. Service Delivery and Financial Management in a New Province 27 CHAPTER 2 Revenue and Financing Gorontalo Public Expenditure Analysis Gorontalo's shared revenue is relatively small. From 2002 to 2005, total shared revenue accounted for less than 5 percent of total provincial scal revenues and less than 7 percent of total district revenues. Shared tax revenue derives from property and income taxes that are administered by the central government and transferred back to the regions. Shared non-tax revenue comes from natural-resource revenue that is distributed back to the regions on a derivation basis (Table 2. 1).14 In general, more shared tax revenue is realized than planned, while shared natural-resource (non-tax) revenue is often under-realized (Table 2. 2). High realization rates for shared tax revenue are explained by the bonuses that regional governments receive if their collection rate exceeds the targeted amount. Conversely, shared natural-resource revenue calculations often lack transparency, resulting in poor estimations by regional governments. Furthermore, in the case of Gorontalo, its shared natural-resource revenues are highly variable from one year to the next. Although the sums involved are relatively insigni cant, this inconsistency makes budgeting from one year to the next problematic. Table 2.2. Shared revenue, realized vs planned Percent, realization rate 2002 2003 2004 2005 Province Shared tax revenue 132.24 111.76 109.88 249.36 Shared natural-resource (non-tax) revenue 33.34 23.94 82.69 n.a. Districts/Cities Shared tax revenue 121.94 116.03 103.98 89.61 Shared natural-resource (non-tax) revenue 84.75 60.96 151.06 247.78 Source: Gorontalo PEA database, University of Gorontalo, 2007. Own-Source Revenue (PAD) As with other regions, own-source revenue in Gorontalo plays a smaller role than central transfers. There are four categories of own-source revenue (PAD): (i) local taxes; (ii) retributions; (iii) pro t from locally owned enterprises; and (iv) other eligible own-source revenues. Law No. 34/2000 stipulates seven types of local taxes and three types of retribution.15 Some autonomy is given to sub-national governments to broaden the local tax base, as long as such broadening meets "good tax criteria" and is approved by the MoF. One of the main reasons why PAD contributions remain low is that taxes -- especially those with the highest potential such as income tax, and land and building tax (Pajak Bumi dan Bangunan, or PBB) -- which are currently collected by the central government, should be the main contributors of PAD. However, some of these taxes do nonetheless return to the region as shared tax revenue. In 2005, PAD realization at the district level accounted for 7 percent of total revenue, while at the provincial level PAD accounted for 17 percent (Table 2. 1). Taxation is a major source of own-source revenue at the provincial level, while user charges are a more important source for the districts (Table 2. 3). Tax collected by Gorontalo province increased by more than 50 percent in 2002-05. Based on the 2006 planned budget, provincial tax accounted for more than 90 percent of total own-source scal revenue. Districts increased their user charges collection by more than 75 percent, while their tax revenues increased by more than 50 percent. However, since their initial collections started from such a low base, this large increase is unlikely to make tax more prominent -- at least, not for many years. In addition, the share of "other"own-source revenue is relatively high, particularly for districts. As stated in Law No. 33/2004,"other"own-source revenue can derive from the sale of assets held by local governments, interest receivables, and receivables from the procurement of goods and services. The majority of sub-national governments try to limit their "other" own-source revenues to less than 5 percent of total own-source revenues (World Bank, 2007a). 14 The distribution arrangements are regulated by Government Regulation (PP) No. 55/2005. 15 Seven taxes stipulated by Law No. 34/2000 are hotel tax, restaurant tax, advertisement tax, street lighting tax, tax for type C mining, and parking tax. The three retributions are from general services, business services, and special licensing. 28 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 2 Revenue and Financing Table 2.3. Gorontalo's own-source revenue composition, 2002-06 2002 2003 2004 2005 2006* Province Rp bn % Rp bn % Rp bn % Rp bn % Rp bn % Tax 23.84 77 29.29 70 33.45 80 37.41 81 37.48 92 User charges 1.04 3 5.46 13 1.50 4 2.80 6 0.00 0 Pro t from reg-owned 0.00 0 0.18 0 0.28 1 0.29 1 1.00 2 enterprises Other own-source revenue 6.20 20 7.01 17 6.37 15 5.61 12 2.22 5 Total own-source revenue 31.08 100 41.94 100 41.59 100 46.11 100 40.70 100 2002 2003 2004 2005 2006* Districts/Cities Rp bn % Rp bn % Rp bn % Rp bn % Rp bn % Tax 4.82 15 6.36 13 7.88 16 7.31 16 7.34 15 User charges 15.24 49 17.67 36 29.75 60 26.44 58 26.86 55 Pro t from reg-owned 0.35 1 1.14 2 2.12 4 3.48 8 3.02 6 enterprises Other own-source revenue 10.71 34 23.53 48 9.57 19 8.67 19 11.23 23 Total own-source revenue 31.13 100 48.70 100 49.32 100 45.91 100 48.45 100 Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Data are in real terms at constant 2005 prices. * 2006 data are budgeted gures. Kota Gorontalo had the highest own-source revenue per capita. The city collected almost seven times more own-source revenue than Kabupaten Bone Bolango (Figure 2. 8). Such a di erence is to be expected given that urban areas generally have larger tax bases than rural areas. Figure 2.8. Kota Gorontalo collects most own-source revenue per capita, 2005 160 140 120 100 80 '000 Rp 60 40 20 0 Bone Bolango Gorontalo Boalemo Pohuw ato Province Kota Gorontalo Own Source Revenue Per Capita Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Data are in nominal terms in 2005. Own-source revenue per capita by district/city and province. In Kota Gorontalo, street lighting taxes and user charges from health services are prominent (Table 2. 4). In general, Kota Gorontalo's taxes and user charges are consistent with the taxes and user charges listed in Law No. 34/2000. Table 2. 4 lists the largest taxes and user charges in Kota Gorontalo and Kabupaten Boalemo. Normally, entertainment taxes and parking taxes/user charges are among the highest taxes and user charges, particularly in urban areas. However, this is not the case in Kota Gorontalo. Such taxes and user charges are less viable given that businesses and tourism remain relatively under-developed and the number of cars is still limited. Only as the economy grows will opportunities increase for Kota Gorontalo to mobilize more signi cant own-source revenue. Service Delivery and Financial Management in a New Province 29 CHAPTER 2 Revenue and Financing Gorontalo Public Expenditure Analysis Table 2.4. Typical district/city local taxes and user charges, 2005 Kota Gorontalo Boalemo Taxes Rp million % Taxes Rp million % Street lighting tax 2,526.77 69.31 Street lighting tax 291.30 50.62 Hotel and restaurant tax 500.67 13.73 Tax on mining of c-class materials 175.33 30.47 Billboard tax 341.17 9.36 Billboard tax 51.60 8.97 Tax on mining of c-class materials 216.23 5.93 Hotel and restaurant tax 37.99 6.60 Total Tax 3,645.79 Total Tax 575.43 User Charges Rp million % User Charges Rp million % Health 12,085.41 73.17 Administrative services 257.93 29.9 Building permits 1,154.23 6.99 Use of region's assets 257.07 29.8 Use of region's assets 572.24 3.46 Health 149.59 17.3 Jasa Pemberi Pekerjaan 401.77 2.43 Market 102.61 11.9 Market 354.03 2.14 Building permits 95.76 11.1 Total User Charges 16,516.43 Total User Charges 1,670.73 Source: Gorontalo PEA database, University of Gorontalo, 2007. Estimating own-source revenue is problematic for both provincial and district/city governments. There was no clear pattern in own-source revenue realization over the period 2002-05. An over-realization in one year is often followed by an under-realization in the following year. For example, the pro ts from locally owned enterprises and "other"own-source revenue in 2003 and 2004, both at the provincial and district/city levels fell signi cantly (Table 2. 5). Tax collection was generally carried out as planned. With the exception of provincial tax collection in 2003, tax collection by the province and districts/cities diverged from planned by less than 10 percent. Districts recorded a better realization rate than the province for user charges. The realization rate for"other"own-source revenue items was not as high as that for taxes and user charges (Table 2. 5). Table 2.5. Own-source revenue, realized vs planned Percent realization rate Province 2002 2003 2004 2005 Tax 116.30 86.42 96.79 99.40 User charges 115.46 69.45 87.35 103.58 Pro t from reg-owned enterprises 0.00 131.99 85.21 98.53 Other own-source revenue 89.19 148.05 67.47 128.53 Total own-source revenue 109.63 89.95 90.35 102.47 Districts/Cities 2002 2003 2004 2005 Tax 105.14 100.55 105.58 105.00 User charges 99.16 92.80 95.38 102.78 Pro t from reg-owned enterprises 56.38 165.53 58.25 35.19 Other own-source revenue 102.33 126.21 73.99 58.63 Total own-source revenue 100.25 108.95 89.30 81.97 Source: Gorontalo PEA database, University of Gorontalo, 2007. Financing Law No. 33/2004 requires regional governments to report nancing in ows and out ows separately from revenue and expenditure. The law de nes nancing as any receipts that need to be repaid and/or payments that will be recovered, either in the current budget year or in subsequent budget years (World Bank, 2005b). Hence, net nancing should cancel out any surplus or de cit in the respective budget year. 30 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 2 Revenue and Financing Figure 2.9. Gorontalo's surpluses and de cits 15 10 5 expenditure total of 0 % 2002 2003 2004 2005 -5 -10 Province Kota Gorontalo Bone Bolango Kab. Gorontalo Pohuwato Boalemo Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Data are in nominal terms. Provincialanddistrictgovernmentshavebeenpostingbudgetsurplusesbutnotrecordingthemconsistently. Gorontalo province consistently posted a surplus budget from 2002 to 2005. In 2002, the province recorded a Rp 4.18 billion surplus (2.7 percent of total expenditure). By 2005, this increased more than fourfold to Rp 17.81 billion (7.1 percent of total expenditure). The two new districts of Pohuwato and Bone Bolango also recorded budget surpluses in 2004 and 2005. However, contrary to the accounting rules, these surpluses were not consistently recorded in the nancing section of the regional budget (as transfers to the reserve fund). Provincial and district governments prefer investing surpluses rather than accumulating reserves. Generally, regional governments with surpluses prefer to invest their funds in shares of regional government-owned companies or by giving loans to other regional governments. In Gorontalo's case, the provincial government used its surplus funds to give loans to districts within the province. Table 2.6. Gorontalo's nancing, 2005 Rp billion Kota Bone Kab. Province Pohuwato Boalemo Gorontalo Bolango Gorontalo Surplus/De cit 17.81 (6.22) 3.72 (0.24) 14.17 (4.75) In ow - - - - - - Transfer from reserve - - - - - - Loans - - - 5.00 - - Borrowing/interests repayment 6.67 0.02 - 0.17 4.53 - Sale of nancial assets - - - - - - Carry over from previous year - 21.45 0.30 - 2.96 - Total 6.67 21.47 0.30 5.17 7.49 - Out ow - - - - - - Transfer in to reserve fund - - - - - - Payment of loan principal - 1.85 - 0.0005 - - Acquisition of nancial assets 0.01 1.16 3.54 0.63 - - Loan receivables 14.32 - - - - - Unclassi ed - - - - 21.66 - Total 14.32 3.00 3.54 0.63 21.66 - Net nancing (7.66) 18.46 (3.23) 4.54 (14.17) - Carry over in to following year 10.16 12.25 0.49 4.30 14.17 - Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Unclassi ed items are for items found in the nancing report that could not be classi ed in the previous items. Service Delivery and Financial Management in a New Province 31 CHAPTER 2 Revenue and Financing Gorontalo Public Expenditure Analysis In general, nancing reports are poorly documented and carry overs are inconsistently reported. Table 2. 7 maps the nancial data reported under the nancing section of the regional budget as stipulated in Kepmendagri No. 29/2002. The items reported in the nancing section are often inconsistent from one year to the next. In addition, carryovers reported in one budget year are often inconsistent with carryovers budgeted in the following year. This poor reporting not only creates errors in the budget plans for the following year, but also increases the risk of budget malfeasance. Table 2.7. Carryovers reported by provincial and district governments, 2006 Rp billion Kota Province Bone Bolango Kab. Gorontalo Pohuwato Gorontalo Carryover to 2006 10.16 12.25 0.49 4.30 14.17 Carryover budgeted in 2006 6.49 12.25 - 4.30 14.17 Di erence 3.67 - 0.49 - - Source: Gorontalo PEA database, University of Gorontalo, 2007. Recommendations Gorontalo's provincial and district/city governments should all strive to improve their estimations of own- source revenues. With the exception of tax collection, own-source revenues are often under-realized or over-realized by more than 20 percent. Although there is no clear trend in realization rates, improved methods of estimation and better projections through higher levels of transparency and more rigorous processes would help to improve rates. Minimize"other"own-sourcerevenuesandincreasethee ectivenessoftaxanduserchargecollection. One of the main responsibilities of sub-national governments is to provide basic services as stipulated in the decentralization law. Taxes and user charges are more e ective in terms of strengthening accountability between service providers and service users than are"other"own-source revenues. Therefore,"other"own-source revenues should be minimized as much as possible, so that all signi cant sources of PAD can be monitored. Improve the standard of accounting in order to increase transparency and accountability. End of scal year de cits or surpluses should be consistent with net nancing, but in many cases there are signi cant discrepancies. This indicates poor accounting practices, wherein carryovers are not correctly reported to the nancing section as stipulated by the law. Capacity should be improved to ensure that accounting practices are rigorously applied to avoid disparities between end-of-year scal balances and carryovers into the following year's budget. This will raise the level of transparency and accountability, and reduce the risk of malfeasance. 32 Service Delivery and Financial Management in a New Province Chapter 3 Expenditure Gorontalo Public Expenditure Analysis CHAPTER 3 Expenditure Gorontalo Public Expenditure Analysis Overall Expenditure Picture Since becoming a new province, Gorontalo's expenditure has increased signi cantly. Gorontalo's sub-national spending, which includes province and district level spending, has increased by more than 100 percent since 2002. Total sub-national spending in 2002 was about Rp 750 billion and this had risen to around Rp 1.5 trillion by 2006. The increase is more signi cant when central government deconcentrated spending is included in consolidated regional spending. In the period 2002-06, deconcentrated spending grew almost tenfold and its contribution towards Gorontalo's consolidated regional spending increased from 24 percent in 2002 to an estimated 60 percent in 2006 (Figure 3.1). Deconcentrated spending has dominated regional spending since 2005. In the years following decentralization, district level spending has been the main component of sub-national spending. However, in terms of total regional expenditure, deconcentrated spending has become larger than both district and province contributions since 2005. Total district level spending has been larger than total provincial spending since the province was rst established in 2001. The relative proportions have remained roughly the same, with total district spending at about three times that of the province. Central government spending in the province, through deconcentrated spending, has assumed a more important role. The level of deconcentrated spending has increased more than tenfold in real terms since 2002 and its share of spending has more than doubled in the same period. Figure 3.1. Driven by deconcentrated spending, total expenditure is increasing faster than national spending 4,000 700 3,500 600 3,000 500 bn) 2,500 trillion) (Rp 400 (Rp 2,000 300 expenditure 1,500 expenditure 200 1,000 Regional National 100 500 - 0 2002 2003 2004 2005 2006* Kabupaten/Kota (L) Province (L) Deconcentrated (L) National Total (R) Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Data in real term (2005=100); 2006 are planned budget. Gorontalo's total sub-national expenditure (provincial and district) per capita is below the national average but similar to other provinces in Sulawesi. In 2005, Gorontalo's total expenditure per capita was Rp 1.05 million (compared with Sulawesi's average of Rp 1.13 million). The highest per capita expenditure on the island was in South Sulawesi, at Rp 1.6 million. 34 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 3 Expenditure Figure 3.2. Consolidated total expenditure per capita by province, 2005 5 4.5 4 3.5 3 regional (Rp'000) 2.5 2 capita 1.5 Per spending 1 0.5 0 Bali Barat Timur Barat Utara Barat Timur Barat Riau Utara Jambi Utara Timur Tengah Banten Selatan Selatan Selatan Jakarta Papua Maluku Belitung Tengah Tengah Lampung Bengkulu Tenggara Jawa Gorontalo Jawa Yogyakarta DKI Darussalam Jawa DI Maluku Tenggara Sumatera Tenggara Sumatera Sulawesi Sumatera Kalimantan Sulawesi Bangka Sulawesi Aceh Kalimantan Kalimantan Sulawesi Kalimantan Nusa Nusa Total Expenditure PC Nat'l Average Nanggroe Source: World Bank sta estimates based on SIKD, MoF 2005. Note: Data in nominal terms. Similar to its consolidated revenues, Gorontalo also has the lowest consolidated expenditure compared with the other new provinces. Gorontalo's consolidated sub-national expenditure (provincial and district) is the lowest of the newly created provinces (Figure 3. 3), at less than Rp 1 trillion. This is about half the consolidated expenditure of Riau Archipelago and West Papua. Most of this consolidated expenditure is spent by the districts, while the province accounts for only about 15 percent of the total. In terms of consolidated expenditure per capita, Gorontalo is also one of the lowest of the newly created provinces, second only to Banten, which has the lowest per capita expenditure in large part due to its large population. Figure 3.3. Gorontalo's consolidated sub-national expenditure is the lowest among new provinces, 2005 4,500 5,000 4,000 4,500 4,000 3,500 bn) (Rp'000) 3,500 Province (L) (Rp 3,000 3,000 Kabupaten/Kota (L) spending 2,500 2,500 Total Subnational (R) Expenditures Expenditure capita 2,000 2,000 per Total 1,500 1,500 1,000 1,000 Sub-national 500 500 Prop. Banten Prop. Prop. Bangka Prop. Maluku Prop. Prop. Prop. Papua Gorontalo Belitung Utara Kepulauan Sulawesi Barat Riau Barat Source: World Bank sta calculations based on SIKD. Note: The bar chart is for per capita expenditure. Line chart is for total sub-national expenditure. Service Delivery and Financial Management in a New Province 35 CHAPTER 3 Expenditure Gorontalo Public Expenditure Analysis Sectoral Allocation More than half of consolidated sub-national spending is allocated to government administration and education. Consolidated sub-national sectoral spending on government administration has been increasing and now accounts for more than one third of total consolidated sub-national spending. Both in real terms and as a share of total consolidated sub-national government spending, government administration has increased signi cantly since 2002, from Rp 180 billion (24 percent) to Rp 551 billion (37 percent) in 2006. Meanwhile, education spending as a share of total consolidated sub-national spending fell from 27 percent in 2002 to 21 percent in 2006, although the level in real terms increased by 60 percent, from Rp 197 billion in 2002 to Rp 318 billion in 2006 (Figure 3. 4). In 2006, 37 percent of Gorontalo's expenditure was allocated for government administration. In 2006, the provincial government allocated 46 percent of its total expenditure for government administration, while district governments spent 33 percent of their total expenditures on government administration. Based on Kepmendagri No. 29/2002, spending units that are classi ed under general government administration include heads of sub-national governments, sub-national parliaments (DPRD), secretaries of sub-national parliaments, and the sub-national planning agency (Bappeda). Figure 3.4. Consolidated sub-national spending on government adminstration is increasing 1600 8% 1400 Others bn) 1200 22% (Rp Infrastructure 1000 8% 10% Education 17% 17% 21% spending 19% 800 Health 16% 20% 6% 26% 600 27% 5% Agriculture 18% 28% 82% Sub-national 400 7% 5% Administration and 27% 6% 5% 4% apparatus 37% 5% 200 6% 36% 29% 32% 24% 0 2002 2003 2004 2005 2006* Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Data in real term (2005=100); 2006 are planned budget. The infrastructure sector (public works and transportation) received 27 percent of total sub-national budget allocations, the second highest sectoral allocation. On average, provincial and district governments in Gorontalo allocate about 18 percent and 15 percent of their budgets, respectively, towards general infrastructure development (roads, bridges, ports) (Table 3. 1). Education was the highest spending item in the districts until 2004, but its overall share is declining and it has since been overtaken by government administration. On average, from 2002 to 2005 districts in Gorontalo spent 33 percent of their budgets on education, although most of this expenditure went towards paying teachers' salaries.16 In 2004, however, the share of education started to decrease and, according to the planned 2006 budget, spending has fallen to 27.3 percent. Conversely, government administration has experienced a signi cant increase and is budgeted to account for 33.5 percent in 2006 (Table 3.1). 16 See Chapter 5 for further discussion of the education sector. 36 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 3 Expenditure Table 3.1. Gorontalo's expenditure by sector 2002 2003 2004 2005 2006* Province Rp bn % Rp bn % Rp bn % Rp bn % Rp bn % Govt administration 63.80 33.7 92.39 36.8 106.66 39.9 115.55 45.8 181.18 46.4 Public works 7.47 3.9 60.50 24.1 49.97 18.7 52.87 20.9 93.64 24.0 Agriculture 22.89 12.1 14.09 5.6 17.51 6.6 16.51 6.5 25.43 6.5 Education and culture 6.31 3.3 14.11 5.6 11.68 4.4 13.92 5.5 17.43 4.5 Fisheries 8.35 4.4 9.16 3.7 7.57 2.8 7.34 2.9 10.11 2.6 Mining and energy 2.04 1.1 1.83 0.7 3.15 1.2 2.78 1.1 3.53 0.9 Forestry and plantation 2.15 1.1 4.95 2.0 3.75 1.4 3.87 1.5 4.63 1.2 Industry and trade 1.83 1.0 2.21 0.9 3.97 1.5 3.66 1.5 5.75 1.5 Manpower 1.77 0.9 3.99 1.6 3.60 1.3 2.91 1.2 3.50 0.9 Health 1.78 0.9 2.10 0.8 3.21 1.2 4.54 1.8 5.85 1.5 Social 1.17 0.6 1.65 0.7 3.66 1.4 4.82 1.9 7.82 2.0 Transportation 46.38 24.5 8.57 3.4 6.74 2.5 5.87 2.3 7.21 1.8 Environment 4.21 2.2 2.32 0.9 4.70 1.8 4.22 1.7 5.31 1.4 People a airs 0.00 0.0 0.59 0.2 0.00 0.0 0.00 0.0 0.00 0.0 Others 19.40 10.2 32.39 12.9 41.10 15.4 13.56 5.4 19.35 5.0 Total expenditure 189.55 100 250.85 100 267.27 100 252.42 100 390.72 100 2002 2003 2004 2005 2006* Districts/Cities Rp bn % Rp bn % Rp bn % Rp bn % Rp bn % Govt administration 116.24 21.0 188.78 26.1 218.00 28.7 260.54 33.2 369.60 33.5 Education and culture 191.18 34.6 257.14 35.6 264.91 34.8 252.89 32.2 300.71 27.3 Public works 75.23 13.6 85.38 11.8 125.47 16.5 110.21 14.0 212.47 19.3 Health 34.44 6.2 57.84 8.0 73.29 9.6 77.52 9.9 89.68 8.1 Agriculture 13.35 2.4 9.98 1.4 15.17 2.0 20.78 2.6 33.35 3.0 Fisheries 2.69 0.5 2.04 0.3 10.27 1.4 7.70 1.0 13.04 1.2 Mining and energy 0.42 0.1 0.00 0.0 0.00 0.0 0.00 0.0 0.33 0.0 Forestry and plantation 6.35 1.1 5.31 0.7 5.54 0.7 5.76 0.7 7.96 0.7 Industry and trade 9.81 1.8 13.31 1.8 5.87 0.8 6.98 0.9 8.71 0.8 Cooperatives 0.88 0.2 1.99 0.3 2.31 0.3 1.52 0.2 2.13 0.2 Manpower 12.02 2.2 2.64 0.4 3.78 0.5 3.95 0.5 5.56 0.5 Social 6.54 1.2 17.64 2.4 7.63 1.0 15.75 2.0 24.66 2.2 Spatial planning 1.78 0.3 53.36 7.4 0.00 0.0 0.00 0.0 0.00 0.0 Housing 16.37 3.0 14.91 2.1 0.58 0.1 0.00 0.0 0.00 0.0 Transportation 6.89 1.2 4.21 0.6 12.93 1.7 8.79 1.1 8.31 0.8 Environment 2.39 0.4 3.31 0.5 6.20 0.8 5.27 0.7 6.11 0.6 People a airs 0.16 0.0 0.50 0.1 5.39 0.7 3.71 0.5 5.84 0.5 Sports 1.18 0.2 0.00 0.0 0.00 0.0 0.00 0.0 1.79 0.2 Tourism 2.77 0.5 3.46 0.5 2.20 0.3 3.64 0.5 11.58 1.1 Land 0.13 0.0 0.14 0.0 0.09 0.0 0.12 0.0 0.00 0.0 Others 52.19 9.4 0.40 0.1 0.81 0.1 0.40 0.1 0.65 0.1 Total expenditure 553.00 100 722.34 100 760.42 100 785.54 100 1102.48 100 Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Data are in real terms at constant 2005 prices. * Data for 2006 are planned. Service Delivery and Financial Management in a New Province 37 CHAPTER 3 Expenditure Gorontalo Public Expenditure Analysis Economic Classi cation: Capital vs Non-Capital Expenditure Economic classi cation enables the analysis of di erent budget formats. Since the start of decentralization, Gorontalo has reported its budget realization in three di erent formats; Manual Keuangan Daearah (Regional Financial Manual, or Makuda), Kepmendagri No. 29/2002, and Permendagri No. 13/2006 format. These formats classi ed expenditures in three di erent ways: (i) Makuda classi ed expenditures as routine and development; (ii) Kepmendagri No. 29/2002 classi ed expenditures as apparatus and public in a uni ed budget format; and (iii) Permendagri No. 13/2006 classi ed expenditures as direct and indirect expenditures in a uni ed budget format. These di erent formats can be classi ed into economic functions that are consistent across di erent sectors in each format. These economic functions are personnel, goods and services, travel, operational and maintenance, capital, and miscellaneous expenditures. Gorontalo utilizes most of its sub-national spending on non-capital expenditure, leaving limited resources for capital expenditure. In 2002, capital expenditure was 44 percent of consolidated sub-national expenditure. Since then, the share decreased to a low of 24 percent in 2005, although it rose somewhat in 2006 to 28 percent. Meanwhile, non-capital expenditure has continued to dominate, with personnel expenditure the main spending item. In 2002, personnel expenditure was only slightly lower in share than capital spending, but its level has increased and its share has consistently been the largest since it overtook capital expenditure in 2003 (Figure 3. 5). Figure 3.5. Capital expenditure is increasing but personnel spending is the largest item 1,600 1,400 1,200 28% 1,000 )001=50 24% 800 26% 35% 21% (20 600 12% 18% bn 44% 12% pR 400 4% 40% 48% 200 42% 45% 40% 0 2002 2003 2004 2005 2006* Personnel Goods and Services Travel Operational and maintenance Capital Others Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Data in real term (2005=100); 2006 are planned budget. Since decentralization, there has been a major decline in the share of provincial-level capital spending. In 2002, 63 percent of total provincial government spending went towards capital expenditure, but by 2005 this share had fallen to a mere 28 percent. This signi cant decline is partly due to the doubling of total expenditure between 2002 and 2005, reaching almost Rp 400 billion in 2005. Over the same period, capital expenditure fell in nominal terms from Rp 120 billion to only Rp 70 billion. However, capital spending is expected to largely recover to Rp 114 billion in 2006 (Figure 3. 6). Similar to the provincial level, districts in Gorontalo are spending less on capital expenditure. Districts in Gorontalo are spending about half of their budgets on personnel expenditure, while spending on goods and services increased more than sevenfold in real terms from 2002 to 2005. Consequently, the share of capital expenditure in districts'budgets decreased from 37 percent in 2002 to 22 percent in 2005. 38 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 3 Expenditure Conversely, non-capital expenditure is increasing both at the provincial and district levels. Personnel spending increased substantially from around only 8 percent in 2002 to 26 percent in 2005. This increase has been largely driven by the increase in the number of civil servants across the province over the period.17 Spending on goods and services also increased from around 7 percent in 2002 to 20 percent in 2005. Table 3.2. Personnel spending is the largest item, with goods and services fast increasing 2002 2003 2004 2005 2006* Province Rp bn % Rp bn % Rp bn % Rp bn % Rp bn % Personnel 15 8 51 20 81 30 66 26 91 23 Goods and services 14 7 36 14 43 16 51 20 130 33 Travel 4 2 17 7 22 8 27 11 0 0 Maintenance 2 1 4 2 6 2 8 3 0 0 Capital 121 64 111 44 74 28 70 28 115 29 Others 34 18 32 13 41 15 31 12 55 14 Total 190 100 251 100 267 100 252 100 391 100 2002 2003 2004 2005 2006* Districts/Cities Rp bn % Rp bn % Rp bn % Rp bn % Rp bn % Personnel 282 51 356 49 409 54 405 52 510 46 Goods and services 19 3 78 11 81 11 135 17 186 17 Travel 6 1 15 2 18 2 18 2 12 1 Maintenance 4 1 22 3 30 4 12 1 6 1 Capital 206 37 230 32 197 26 175 22 314 28 Others 36 7 22 3 25 3 40 5 88 8 Total 553 100 722 100 760 100 784 100 1,115 100 Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Data are in real terms and at constant 2005 prices. Data for 2006 are planned. In 2006, provincial data included o cial travel, together with operations and maintenance, under goods and services. Planned vs Realization From 2002 to 2005, neither the provincial nor the district governments were able to spend their full budgets. On average over this period, the provincial government spent 88 percent of its budgeted expenditure, while the districts were able to spend about 92 percent of their budgets. Most spending items diverged from their planned targets by less than 10 percent. However, in 2002, the provincial government spent less than 60 percent of its budgeted personnel expenditure. This was because of the implementation of the Regional Performance Incentive (Tunjangan Kinerja Daerah, or TKD). The TKD redistributes honoraria to all personnel based on merit.18 In addition, the province only spent 84.3 percent of its capital budget in 2004, a level that only improved slightly to 86.9 percent in 2005. This is probably because the province lacked the capacity to implement capital investments on time by the end of the scal year. A closer look at the data shows that in 2002 and 2003 the province failed to spend 7 percent and 5 percent of its capital expenditure, respectively, and carried over these sums into the following budget year. This under-spending by the province was reported as an item called belanja luncuran (carried-over spending). However, this is an unusual practice, as according to the law carryovers should be reported in the nancing section of the sub-national budget. 17 See Chapter 6 for a more detailed discussion on civil servants in Gorontalo province. 18 See Chapter 6 for more detailed information on Regional Performance Incentive (Tunjangan Kinerja Daerah, or TKD). Service Delivery and Financial Management in a New Province 39 CHAPTER 3 Expenditure Gorontalo Public Expenditure Analysis Table 3.3. Planned vs realized spending, 2002-05 Percent realization rate Province 2002 2003 2004 2005 Personnel 57.68 75.70 90.52 92.19 Goods and services 91.63 92.99 88.73 87.55 O cial travel 94.27 92.93 96.87 - Operation and maintenance 81.13 82.03 89.49 - Capital 93.35 95.27 84.29 85.94 Others 118.77 93.31 90.58 83.76 Total Expenditure 91.98 89.64 88.89 87.76 Districts/Cities 2002 2003 2004 2005 Personnel 90.65 92.96 92.26 93.66 Goods and services 91.21 86.73 91.45 97.60 O cial travel 81.46 87.87 81.03 94.06 Operation and maintenance 77.04 92.35 90.79 94.49 Capital 95.07 98.01 91.78 91.59 Others 92.71 80.14 75.48 87.10 Total Expenditure 92.17 93.19 91.01 93.50 Source: Gorontalo PEA database, University of Gorontalo, 2007. In some sectors, the provincial government still realizes less than 90 percent of its budgeted spending. In 2002, realized provincial spending on the manpower and social sectors was signi cantly less than planned. However, realization rates have improved in recent years. From 2002 to 2005, the average realization rate for both these sectors was only around 75 percent, but in 2005 the provincial government achieved a realization rate of more than 90 percent of its planned budget for both sectors. However, in the sheries sector -- one of the main development sectors identi ed by the provincial government -- only 82 percent of budgeted spending was realized. Table 3.4. Expenditure, planned vs realized, 2002-05 Percent realization rate by sector Province Districts/Cities 2002 2003 2004 2005 Average 2002 2003 2004 2005 Average Government administration 87.8 90.8 85.5 85.6 87.4 91.9 86.8 87.3 90.8 89.2 Agriculture 99.7 85.0 92.9 92.9 92.6 91.1 87.7 87.3 89.9 89.0 Fisheries 84.6 83.6 89.9 82.0 85.0 92.7 89.4 86.9 94.4 90.9 Mining and energy 74.8 66.3 95.4 93.5 82.5 97.6 - - - 97.6 Forestry and plantation 70.7 84.2 86.7 90.2 82.9 87.2 86.9 86.0 91.5 87.9 Trade and industry 67.2 61.2 92.6 95.2 79.0 73.5 97.3 71.3 83.9 81.5 Manpower 59.0 74.6 75.3 90.7 74.9 91.3 88.3 89.4 92.0 90.3 Health 67.6 69.2 92.2 95.7 81.2 105.0 102.5 97.9 105.7 102.8 Education and culture 86.2 83.2 89.8 92.2 87.9 92.9 93.1 92.9 94.4 93.3 Social 45.1 65.9 97.9 93.5 75.6 93.5 96.7 90.0 93.0 93.3 Public works 82.2 96.9 92.3 89.2 90.2 98.5 99.3 93.2 93.9 96.2 Transportation 95.1 83.1 91.3 90.7 90.1 96.8 93.1 92.2 94.4 94.1 Environment 95.9 96.1 98.1 91.3 95.3 88.6 96.0 95.2 95.4 93.8 People a airs - 100.6 - - 100.6 84.3 73.6 92.5 87.6 84.5 Cooperatives 93.1 87.4 83.3 87.6 87.8 Spatial planning 87.9 98.8 - - 93.3 40 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 3 Expenditure Cont'd Province Districts/Cities 2002 2003 2004 2005 Average 2002 2003 2004 2005 Average Housing 88.6 99.2 72.6 - 86.8 Sports 86.8 - - - 86.8 Tourism 90.7 92.1 74.7 93.7 87.8 Land 74.9 98.5 95.5 99.3 92.0 Others 135.7 93.3 90.6 83.7 100.8 81.9 99.9 45.9 58.2 71.5 Total expenditure 92.0 89.6 88.9 87.8 89.6 92.2 93.2 91.0 93.7 92.5 Source: Gorontalo PEA database, University of Gorontalo, 2007. Average realization rates of district governments were higher than those of the province. Annual averages showed that districts' realization rates are almost 4 percentage points higher than those of the province. In all key sectors (i.e. health, education, and infrastructure [public works and transportation]) realization rates in the districts are higher than in the province. The greatest di erence is seen in the health sector, where the realization rate in the districts is 102.8 percent, while that of the province is only 81.2 percent. This is because the districts are at the frontline of basic service delivery in the health sector, as is also the case in education and infrastructure. However, the province government has overtaken the districts in spending aimed at stimulating the province's economy. This is shown in the rates of realization for spending on trade and industry over the past two years. Provincial realization rates are signi cantly higher than those of the districts, at 92.6 and 95.2 percent for the province compared with 71.3 and 83.9 percent for the districts, for the two sectors respectively. Central Government's Deconcentrated Spending In a decentralized Indonesia, there are two ways in which the central government can spend development expenditure in the regions: deconcentrated (dekonsentrasi) spending or assistance task spending (tugas pembantuan). According to PP No. 106/2000, deconcentrated spending follows the delegation of authority from the central government to the province (governor) as the representative of the central government in a region. Assistance task spending is similar but can go directly to districts/cities. Provincial technical Dinas o ce (government o ce) implements deconcentrated spending, but the nancial reporting is separate from the provincial budget (APBD). Therefore, the provincial government is directly accountable to the central government. Gorontalo is one of the provinces receiving high central government deconcentrated spending. On a per capita basis, Gorontalo's deconcentrated spending is the sixth highest in the country. In 2005, Gorontalo received deconcentrated spending of Rp 1,780,000 per capita. This is more than twice the national average of Rp 888,000 per capita -- far higher than most other provinces. However, compared with Papua, which receives the highest deconcentrated spending per capita at Rp 3,258,000, Gorontalo receives just over half Papua's per capita level (Figure 3. 7). Service Delivery and Financial Management in a New Province 41 CHAPTER 3 Expenditure Gorontalo Public Expenditure Analysis Figure 3.6. Central government deconcentrated spending per capita by province, 2005 3,500 3,000 2,500 spending 2,000 (Rp'000) 1,500 capita Deconcentrated per 1,000 500 - t Riau ng ge t raUtai Selatanan ra Bali t rta g ur gara kulu ah i Utararon talo D ah ara u BantenBara ngah latan Barat Jambi tun im T Timur NA Papua Te Se ra Teng u Ut Maluk Jawa LampualAveragaraBaraaSe r latan aBaragyaka ter aBeli ga i Teng Beng i Teng Go Jawa Jawa Timur Yo NaNusa TengSumate tion mate lawes Su Su Kalimant DI Maluk KalimantanSuma Bangka TengSulawes lawes mantanSulawes Su Nus Kali Kalimantan Source: Ministry of Finance and Gorontalo PEA database, University of Gorontalo, 2007. Note: World Bank sta estimates based on data from MoF; DKI Jakarta is excluded; weighted average. ThemajorityofdeconcentratedspendinginGorontalogoestowardstheeducation(24percent),infrastructure (16 percent), health (15 percent) and agriculture (14 percent) sectors. These key sectors take up about 69 percent of Gorontalo's deconcentrated spending, leaving 31 percent for other sectors. In several sectors, such as education and health, deconcentrated spending is considerably higher than combined provincial and district government spending (Figure 3. 8). This shows that while education and health are functions that have been decentralized to sub-national governments, the central government still plays an important role in determining priorities and implementation activities. This risks central government encroaching on the roles and responsibilities of sub-national governments. More detailed information and analysis is needed to identify those activities that are being funded by deconcentrated spending and those that depend primarily on sub-national funds. Figure 3.7. Central government spending on decentralized sectors, 2005 700 600 500 bn 400 Rp 300 200 100 0 Agriculture Health Administration Infrastructure Others Education and apparatus Province Kabupaten/Kota Deconcentrated Spending Source: Ministry of Finance and Gorontalo PEA database, University of Gorontalo, 2007. Note: World Bank sta estimates based on data from MoF. 42 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 3 Expenditure Recommendations Minimize spending on government administration and allocate higher shares to basic services and pro-poor programs. In developed economies, spending on government administration is usually less than 5 percent (World Bank, 2007a). Gorontalo's provincial and district governments should aim to minimize their spending on government administration, especially now that the newly created districts are well established, and increase allocations for basic services and pro-poor spending programs. Deconcentrated spending should not be allowed to crowd out sub-national spending, but instead should be used to support regional spending especially in decentralized sectors. The central government needs to coordinate more closely with the province to ensure that central government funds are not spent on sub-national government tasks and responsibilities. A resolution of this issue would be greatly enhanced by the issuance of Ministry of Home A airs (MoHA) regulations on functional assignments across all three levels of government. The provincial government should increase spending on basic services according to the division of tasks and responsibilities between the province and the districts. The current laws on planning and budgeting allow the provincial government to spend on basic services following its review of planning and budgeting documents from the districts/cities. Once the provincial government has had an opportunity to review district/city budgets, it can then advise on more e cient spending if needed, and also better adapt its own supportive spending to avoid duplicating districts'areas of responsibility or initiatives. Eliminate the practice of reporting"belanja luncuran"(carryover spending) and reclassify these funds to the appropriate economic classi cation. According to Law No. 33/2004, unrealized spending that is carried over from one scal year into the next should be reported in the nancing section of the budget and activities that are un nished should be re-planned and documented in the next scal year. Service Delivery and Financial Management in a New Province 43 CHAPTER 3 Expenditure Gorontalo Public Expenditure Analysis 44 Service Delivery and Financial Management in a New Province Chapter 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis Education sector Prior to independence, Gorontalo's educational standards were higher than other regions of Indonesia, but the province has since been overtaken. The decline in Gorontalo's education compared with the rest of Indonesia is apparent in data on school attendance levels by year of birth. People born in Gorontalo in 1935-44 were more likely to have attended school or completed primary, junior or senior secondary education than average Indonesians. However, the percentage of people born in Gorontalo after 1955 graduating from primary, junior and secondary school lagged behind the rest of the country. Gorontalo has clearly failed to keep pace with the improvements in education made across the country (Figure 4. 1). Figure 4.1. Educational attainment by year of birth Ever attended school Completed primary school 100 100 80 80 Gorontalo 60 60 % % 40 Indonesia 40 20 20 0 0 1935- 1945- 1955- 1965- 1975- 1985- 1935- 1945- 1955- 1965- 1975- 1985- 1944 1954 1964 1974 1984 1994 1944 1954 1964 1974 1984 1994 Completed junior secondary school Completed senior secondary school 100 100 80 80 60 60 % % 40 40 20 20 0 0 1935- 1945- 1955- 1965- 1975- 1985- 1935- 1945- 1955- 1965- 1975- 1985- 1944 1954 1964 1974 1984 1994 1944 1954 1964 1974 1984 1994 Source: World Bank sta estimates based on Susenas and BPS, 2005. Primary and secondary enrollment rates in Gorontalo are lower than national averages, but have started to improve since decentralization. Gorontalo's net senior secondary school enrollment rate in 2005 was similar to the average enrollment rate for Indonesia in 1995, showing Gorontalo's 10-year lag in this education indicator. Nonetheless, primary net enrollment rates have almost caught up with national net enrollment rates, increasing from 81 percent in 2002 to 88 percent in 2005. Primary net enrollments are now only 5 percentage points behind the national average of 93 percent (Table 4. 1). Compared with the neighboring provinces of Central Sulawesi and North Sulawesi, Gorontalo's enrollment rates are also lower, especially for junior and senior secondary schools. 46 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors Table 4.1. Trends in net and gross enrollment rates Percent 2002 2005 SD SMP SMA SD SMP SMA Gorontalo Net enrollment rate 81 42 23 88 46 32 Gross enrollment rate 93 58 33 104 64 44 North Sulawesi Net enrollment rate 88 67 44 91 66 50 Gross enrollment rate 104 88 57 107 86 70 Central Sulawesi Net enrollment rate 90 51 27 92 61 35 Gross enrollment rate 106 71 37 106 78 46 Indonesia Net enrollment rate 93 61 37 93 65 42 Gross enrollment rate 106 80 50 107 82 53 Source: Susenas, 2002 and 2005. Note: SD = sekolahdasar (primary school); SMP = sekolahmenegah pertama (junior secondary school); SMA = sekolahmenegahatas (senior secondary school). The gross enrollment rate represents all current enrollments in school, while the net enrollment rate represents only the school-aged population currently enrolled in school. This means that the gross enrollment rates can be more than 100 percent where some students stay on to complete years beyond normal school age for that particular school level. Since decentralization, signi cant progress has been made in improving access to schools of all levels. Access to schools has improved in Gorontalo, with 53 new schools (at all levels from primary to vocational schools) built between 2003 and 2005 to reduce the number of students per school. In 2005, at the primary level, the average number of students per school was 172. This ratio is higher at the secondary level, where an average junior secondary school has 237 students and an average senior secondary school has 313 students. Based on student-teacher ratios across Gorontalo, an average primary school teacher has 22 students, while there are only 12 students for every junior secondary school teacher and 11 students for every senior secondary school teacher. Thus, it is clear that Gorontalo has an oversupply of teachers (Table 4. 1). However, in reality the numbers of students per class are likely to be signi cantly higher due to the fact that many teachers are part-time and there are high levels of teacher absenteeism -- an Indonesia-wide problem. A 2004 nationwide study found that almost one in ve teachers was absent from school at any one time and there is no reason to believe that Gorontalo is any exception (Usman, Akhmadi, and Suryadarma, 2004). A combination of low student numbers per school and the nine-teachers-per-school rule means that an oversupply of teachers exists. Compliance with the nine-teachers-per-school rule will tend to create low student- teacher ratios (STR) -- a phenomenon that is apparent in a majority of schools across Indonesia. While low STRs should theoretically be bene cial for teaching quality, this is not always the case, especially if teacher absenteeism is high and many teachers are part-time. Instead, low STRs indicate the likelihood of ine cient teacher management, imposing nancial burdens on district government budgets. The primary school STR in Gorontalo is slightly higher than the national average, at 22 compared with an STR of 19 nationally, while it is slightly lower than nationally for higher education levels (Table 4. 2). In addition to the nancial burden it imposes, the nine-teachers-per-school rule also removes any incentive to nd creative solutions to reduce teacher oversupply in schools where there are low numbers of students. Service Delivery and Financial Management in a New Province 47 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis Table 4.2. Teacher oversupply in Gorontalo, 2005 Student-school Level of education Schools Students Teachers Gorontalo STR National STR ratio Primary 792 135,949 6,180 22 19 172 Junior secondary 144 34,133 2,804 12 13 237 Senior secondary 63 19,697 1,793 11 13 313 Source: District Education Bureaus and Ministry of National Education, 2006. Despite improvements in enrollment rates and access to schools, wide variations between districts remain a serious concern. The enrollment rates in junior and senior secondary schools vary widely between districts. At the junior secondary school level, Kota Gorontalo has an enrollment rate of 74.5 percent, while Kabupaten Gorontalo's enrollment rate is only 43.9 percent. Similarly, at the senior secondary school level, Kota Gorontalo's enrollment rate of 57.2 percent is signi cantly higher than the 23.6 percent rate seen in Kabupaten Gorontalo. With the sole exception of the elementary school level, Kota Gorontalo has the highest enrollment rates, while Kabupaten Gorontalo has the lowest (Table 4.3). Table 4.3. Secondary education enrollment rates vary widely, 2005 Percent Net enrollment rate Elementary Junior secondary Senior secondary Gorontalo's average 90.5 52.3 34.5 Kota Gorontalo 88.8 74.5 57.2 Kab. Gorontalo 90.3 43.9 23.6 Boalemo 92.2 57.4 34.4 Pohuwato 91.2 49.1 33.1 Bone Bolango 90.6 59.1 39.8 Source: World Bank sta calculations based on Susenas. The condition of primary schools in Gorontalo is poor. According to the Ministry of National Education, only 50 percent of primary school classrooms in Gorontalo are considered to be in good condition (MoNE, 2005). Although this is higher than Indonesia's average of 44 percent, such poor levels of maintenance should be a matter of concern for the province. The situation is rather better in junior and senior high schools, with 83 and 96 percent of classrooms in good condition, respectively, compared with 81 percent of junior high and 90 percent of senior high school classrooms nationally. Education Expenditure AlthoughGorontalo'stotalregionaleducationexpenditure(district,provincialanddeconcentrated)continues to increase, the share of total regional education spending is decreasing. From 2002 to 2005, regional education expenditure doubled and per capita regional expenditure increased from Rp 266,000 to Rp 654,000. Nevertheless, education as a share of regional spending fell by four percentage points over the four years (Figure 4.2). 48 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors Figure 4.2. Trends in regional education spending 700 35 29 600 26 30 25 25 500 25 prices) 400 20 2005 % 300 15 (constant 200 382 10 bn 368 654 Rp 266 100 5 0 0 2002 2003 2004 2005 Regional Expenditures (L) share of total (R) Source: Gorontalo PEA database, University of Gorontalo, 2007. Gorontalo's sub-national education spending (district and provincial) is higher than average. This applies whether comparing education expenditure as a share of total spending or per capita spending. In 2005, Gorontalo's sub-national spending per school-aged student enrolled in primary and secondary schools was Rp 1,302,542 per capita, Rp 311,843 higher than the national average of Rp 990,700. Meanwhile, Gorontalo's district and provincial governments spent 27 percent of their total expenditure on education, 2 percentage points higher than the national average (Figure 4.3). Figure 4.3. Sub-national education spending per student enrolled in primary and secondary school by province, 2005 3,000 40 35 2,500 30 2,000 25 1,500 20 '000 % 15 Rp 1,000 10 500 5 0 Bali Barat Barat Riau Riau Papua Utara Timur Barat Jambi Timur Barat Barat Timur Utara Utara Barat Tengah Tengah Selatan Maluku Selatan Belitung National Tengah Jakarta Selatan Banten Gorontalo Bengkulu Tenggara Lampung Papua Yogyakarta Darussalam DKI Jawa Jawa Jawa Sulawesi Sulawesi Sumatra Maluku Sumatra Kepulauan Sulawesi Tenggara Tenggara Aceh Bangka Sulawesi Kalimantan Kalimantan Sumatra Kalimantan Kalimantan Sulawesi Nusa Nusa Nanggroe Sub-national education expenditure (per student enrolled in primary and secondary school (L) Share of subnational education expenditure (R) Source: World Bank sta calculations, SIKD 2005. Education continues to be a priority sector in Gorontalo and is the second highest sector in terms of funding. In 2002, education spending accounted for the highest share of sub-national spending in the province out of 21 sectors. While its share of total expenditure has declined in subsequent years, education it is still the second highest sector in terms of expenditure share. Service Delivery and Financial Management in a New Province 49 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis Inrecentyears,deconcentratedspendingoneducationhascometodominate. In2004,themajorityofeducation spending came from district governments (72 percent). As mentioned in Chapter 3, in 2002 education was the largest spending sector for district governments, with 34.8 percent of total district government expenditure allocated. This was slightly higher than the national average of 33.7 percent. By 2005, the proportion of total expenditure allocated to education by district governments had decreased substantially, coinciding with a 300 percent increase in deconcentrated education spending. As a result, and similar to other provinces, deconcentrated allocations now dominate and Gorontalo's education sector depends on central government allocations for 59 percent of its spending on the sector (Table 4.4). Table 4.4. Regional education expenditure (province + district + deconcentrated) 2002 2003 2004 2005 Rp bn % Rp bn % Rp bn % Rp bn % Province expenditure 6.3 2 14.1 4 11.7 3 13.9 2 District expenditure 191.2 72 257.1 67 264.9 72 252.9 39 Deconcentrated expenditure 68.9 26 110.8 29 91.0 25 387.3 59 Total regional education 266.4 100 382.1 100 367.6 100 654.1 100 expenditure (2005 prices) Nominal total regional education 218.9 326.8 334.3 654.1 expenditures Growth real total regional education 30.3 -3.9 43.8 expenditures Education expenditure (% of total 28.80 26.43 25.22 24.64 regional) Source: Gorontalo PEA database, University of Gorontalo, 2007. The provincial government's contribution to education expenditure is low. The provincial share of total regional education expenditure in 2005 was only 2 percent, while the average provincial share of total education spending nationwide in that same year was almost twice this level, at 3.8 percent. Nor was 2005 an exceptional year; in earlier years the low share of provincial spending on education in Gorontalo compared with other provinces con rms Gorontalo's low level of provincial spending (World Bank, 2007a). The vast majority of district education spending goes towards paying teachers' salaries. Only 14 percent of district government education spending is used for purposes other than paying teachers'salaries. This is similar to most other districts in Indonesia and partly caused by an oversupply of teachers. About 11 percent of district education spending goes towards capital expenditure. Only 2 percent is spent on goods and services (which also includes travel and other expenses) and only 1 percent on maintenance. This low level of expenditure on maintenance is particularly worrying and clearly inadequate, given that half of Gorontalo's primary school classrooms are not considered to be well maintained. If maintenance of schools is delayed, costs will inevitably rise and involve the full replacement of existing buildings (Figure 4.4). At the provincial, 37 percent of education expenditure went towards salaries in 2005. This apparently high gure is explained by the fact that the provincial government is responsible for teachers'salaries at senior high schools. 50 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors Figure 4.4. Economic classi cation of education expenditure, 2005 Districts/Cities Province 1 % 7 % 11 % 2 % Travel, maintenance, 37 % 25 % Travel, maintenance, and other and other Capital Capital Goods and services Goods and services Personnel Personnel 86 % 31 % Source: Gorontalo PEA database, University of Gorontalo, 2007. Compliance with Indonesia's "20 percent rule" will require a continuous increase in the share of education expenditure at the sub-national level. Indonesia's constitutional"20 percent rule"requires that 20 percent of total expenditure goes towards education. This has become politically problematic since the ruling that the 20 percent should exclude teachers'salaries. Furthermore, the declining share of Gorontalo's sub-national spending on education makes ful lling the"20 percent rule"clearly impossible, even if it were desirable. Sub-national education expenditure (districts and province) accounts for only 4.5 percent of total education spending excluding salaries. If teachers'salaries are excluded, then compliance with the rule would require a massive 445 percent increase in non-salary education spending. The level of education spending varies widely between districts. In 2005, Kota Gorontalo's per capita spending was Rp 430,968, three times higher than the lowest spender, Kabupaten Baolemo. As a proportion of its total budget, Kabupaten Gorontalo was the highest, with about 42 percent of total district expenditure going towards education. Kabupaten Baolemo also had the lowest share, with only 13 percent of its budget spent on education (Figure 4.5). Figure 4.5. Boalemo spends least on education, 2005 500 50 430,968 '000) 400 40 (Rp 42 348,659 (%) capita 37 per 300 34 30 267,533 237,530 spending 25 200 20 140,640 Education 100 13 10 - Kota Gorontalo Bone Bolango Gorontalo Pohuwato Boalemo Education expenditure per capita (L) Share of education expenditure to total expenditure (R) Source: Gorontalo PEA database, University of Gorontalo, 2007. Service Delivery and Financial Management in a New Province 51 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis Despite Gorontalo's increasing regional education expenditure, public utilization rates still lag behind those of other provinces. In Gorontalo, 91 percent of the primary school-aged population currently utilizes public primary education facilities (Figure 4.6). This is a similar utilization rate to the average for eastern Indonesia. However, it is behind both the average for newly formed provinces and the national average. Figure 4.6. Access to public primary education by income group 96 95 94% ) 94 93% (% 93 schools 92 91% Quintile 1 (Poorest) 91% 91 Quintile 2 primary 90 Quintile 3 public 89 Quintile 4 to Quintile 5 (Richest) 88 Average Access 87 86 Gorontalo Eastern New Provinces National Average Indonesia Average Average Source: World Bank sta estimates based on Susenas, 2006. Note: The averages for eastern Indonesia and new provinces exclude Gorontalo. Public primary education in Gorontalo should become more pro-poor. Gorontalo's poor are lagging in terms of access to public primary school. The poorest 20 percent of Gorontalo households have the lowest primary education enrollment rates. People in the highest income group have almost the same access to public primary education, if not slightly higher access than the lowest income group. A similar picture is found in eastern Indonesia and other newly created provinces, where the richest income groups have more access than the poorest. However, this is very di erent from the national picture, where the poorest income group's access to public primary education services is higher than the richest. Recommendations: Education Focus on improving education infrastructure and the quality of teaching. Now that primary school enrollment rates are catching up with other regions and approaching full coverage, capital spending priorities in primary education should include improving education infrastructure and raising the quality of teaching and teaching methods. Improving the spending mix by adjusting the allocation between the various education programs, for instance primary, junior secondary and senior secondary, would also bene t these objectives. Furthermore, spending on operations and maintenance is clearly inadequate and should be made a far higher priority. Undertake further analysis to understand whether additional resources are needed to increase enrollment in secondary education. Increasing enrollment rates in junior and senior secondary schools will be of bene t to the province and give higher rates of return. However, current data do not allow analysis of the distribution of sub- national expenditures across the primary, junior secondary and senior secondary education levels. Such data would help to determine whether there is a case for reallocating resources between the three education levels. Improve the poor's access to public education. Access to public education in Gorontalo is relatively low, especially for the poorest income group. If the poor cannot gain access to a service, then this requires that the service be brought closer to the poor. Education facilities need to be provided in the poorest regions of the province and, if possible, targeted in such as way as to address the speci c educational needs of the poor. With a population that relies 52 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors mainly on agriculture as its primary source of income, there is a strong case for increasing the emphasis on vocational training focused on agriculture. However, further analysis needs to be undertaken to better understand current levels of demand and supply for vocational education. The ndings of such analysis could then be used as a basis on which to design an educational supply mix for the province that best serves the needs of the population. Infrastructure sector19 In general, infrastructure in Gorontalo has improved since decentralization. Some infrastructure indicators, such as access to roads and irrigation, are higher than national averages. However, others are still lagging behind, despite recent improvements. For example, the number of people with no access to sanitation has decreased but is still more than twice the national average, while access to electricity is one of the lowest in Indonesia. While access to improved water sources has risen, it remains low compared with the national average.20 Even today, 75.6 percent of households in Gorontalo do not have access to improved water sources despite an increase of 4.6 percentage points measured between 2002 and 2006. However, this should be seen in the national context: in Indonesia as a whole no improvement was made over the same period. Over the past four years, a further 50,000 households in Gorontalo have gained access to piped water. As a result, access to piped water is now close to the national average of 18 percent. Access to other types of improved water sources also remains relatively low (Table 4. 5). Table 4.5. Trends in infrastructure outcomes Percent Gorontalo Indonesia 2002 2006 2002 2006 Public sanitation 5.5 9.8 5.3 6.0 No sanitation 50.2 44.4 24.9 19.7 Piped water 11.2 16.0 18.4 18.4 Improved water (excl piped water) 18.8 23.4 29.9 29.4 Sanitation (tangki) 29.9 24.3 39.8 40.7 Irrigation 72.5 78.9 71.0 Source: Susenas, 2002 and 2006, and PU Kimpraswil Gorontalo, 2002 and 2006. Almost half of the population in Gorontalo does not have access to public, private, or shared sanitation facilities. The province has the highest rate of households in Indonesia without access to sanitation facilities. Just over half the population had no access to sanitation in 2002 and the number had only slightly improved by 2005, from 50.2 percent to 44.4 percent. In terms of access to public sanitation facilities, Gorontalo has seen a signi cant improvement from 2002 to 2005 compared with the national rate. In terms of sewerage, a smaller proportion of households in Gorontalo (24.3 percent) use tangki (septic tanks) than in the rest in Indonesia (40.7 percent). As with other regions in Indonesia, the poor are far less likely to have access to safe water and electricity. In Gorontalo, those in the highest spending quintile have more than twice the level of access of those in the poorest quintile. Although this disparity between the rich and the poor exists across Indonesia, the gap is widest in Gorontalo (compared with other newly created provinces, other eastern Indonesia provinces, and the rest of Indonesia overall) indicating the highest level of inequality (Figure 4.7). 19 Infrastructure covers the public works Dinas which, in the case of Gorontalo, covers clean water and sanitation, irrigation, roads and bridges, buildings and energy. 20 Access to safe drinking water is estimated by the percentage of the population using improved drinking water sources. The improved water sources are: household connection, public standpipe, borehole, protected dug well, protected spring, rainwater collection (MDG indicators de nition). The improved water sources de nition used in this report di er slightly to accommodate Susenas, which are: bottled water; piped water; and water pump, protected and unprotected well that are more than 10 meters away from waste or septic tank. Service Delivery and Financial Management in a New Province 53 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis Figure 4.7. Access to safe water is in line with other regions but not access to electricity Access to safe water 80 70 60 50 45% 45% 45% (%) 36% 40 water Quintile 1 (Poorest) ef 30 sa Quintile 2 to 20 Quintile 3 ss Quintile 4 Acce 10 Quintile 5 (Richest) 0 Average Gorontalo Eastern New Provinces National Average Indonesia Average Average Access to electricity 120 100 88% 80% 80 74% 72% 60 (%) Quintile 1 (Poorest) ricitytcele 40 Quintile 2 Quintile 3 ot ss 20 Quintile 4 Quintile 5 (Richest) Acce 0 Average Gorontalo Eastern New Provinces National Average Indonesia Average Average Source: World Bank sta estimates based on Susenas, 2006. Note: Eastern Indonesia and new provinces'averages exclude Gorontalo. Access to electricity is among the lowest in the country. About 46 percent of all villages in Gorontalo do not have access to electricity. This rate is lower than other provinces in Sulawesi and only Papua, and West and East Nusa Tenggara, had a higher proportion of villages without access to electricity (Figure 4.8). Furthermore, more than half Gorontalo's population has no electricity connection. In 2005, the proportion of households with electricity connection was the fourth lowest out of 33 provinces. Even for those with access to electricity, blackouts are a regular occurrence throughout the province. 54 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors Figure 4.8. Gorontalo's access to electricity is one of the lowest in the country 100 National Average Gorontalo (2005) (2005) 80 60 (%) 40 tricity elec 20 to ss 0 Acce ru a o e r il r at miT arat alt arat ib n u m B apuP pung U kuul ul taraB ua en Ri arat arat ehc Ba auiR arat ar Ja engahT engahT eragv B Timu A taraB nguti ant a Timu U ak oron G enggaraTise nataleS el B amL engahTi es kuul taaleS Ma engk ar a a w B B a Uise tra an natna nataleSise A at waJ wal auan Ja a natn arta ogy m Y enggaraT enggaraT Ma awJ N K asu asu waluS aw wal onali umS natna anggroe epul Su ulS muS ant mil Su mi at angk al Ka Su N mil B limaa K K Ka N N Households with access to private electricity (%) Households with access to public electricity (PLN) (%) Source: World Bank sta estimates based on Podes and BPS, 2005. Irrigation coverage and access to road infrastructure in Gorontalo is relatively high compared with the rest of Indonesia. The level of irrigation in Gorontalo is higher than the national average, at 78 percent versus 71 percent nationally. Road coverage is also more extensive in Gorontalo and, as a result, at 53 percent of villages have access to roads. Road quality data suggest that across all road types (national, provincial and districts roads) road quality is relatively high compared with national averages. Over the past few years, there has also been an expansion of the road system, which has increased the share of roads in good condition. However, the quality of national roads is declining. The proportion of national roads in good condition is close to the national average (29.17 percent in Gorontalo versus 30.9 percent nationally). However, the proportion of national roads in fair condition is higher in Gorontalo than the national average (58.11 percent versus 50 percent), while the proportion of national roads in Gorontalo in poor condition is 6 percentage points lower than the national average (Annex E.13). Infrastructure Expenditure The level of regional spending on infrastructure (district, provincial and deconcentrated) in Gorontalo increased by 24 percent in the period from 2002 to 2005. However, the share of total regional expenditure spent on the infrastructure sector declined from 22 prcent in 2003 to 17 percent in 2005 (Figure 4.9). Figure 4.9. Trends in regional infrastructure spending, 2002-05 250 25 22 19 200 20 18 17 ) bn (Rp 150 15 spending 218 e 100 10 183 (%) 178 144 infrastructur 50 5 Regional 0 0 2002 2003 2004 2005 Regional infrastructure spending (L) Share of infrastructure spending to total regional spending (R) Source: Gorontalo PEA database, University of Gorontalo, 2007. Service Delivery and Financial Management in a New Province 55 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis Gorontalo spends relatively more on infrastructure than other provinces. Despite the declining share of regional infrastructure expenditure, Gorontalo's sub-national governments (districts and province) spend more on infrastructure than any other province in Indonesia, with the exception of East Kalimantan. More than 25 percent of Gorontalo's sub-national expenditure goes towards infrastructure, 10 percent more than the national average share of sub-national infrastructure spending. In 2005, Gorontalo spent more than Rp 288,000 per capita on infrastructure, more than double the national average at Rp 127,000 per capita. Infrastructure is Gorontalo's third largest spending sector, after government administration and education (Figure 4.10). Figure 4.10. Sub-national infrastructure spending, 2005 1,400 35 1,200 30 1,000 25 (%) '000) 800 20 (Rp capita 600 15 per capita 400 10 Share Per 200 5 0 0 m a Bali Timur Barat Riau Riau Papua Jambi Barat Utara Barat Barat Utara Timur Barat Timur Barat Utara Tengah Jakarta Tengah Selatan Selatan Maluku Selatan Banten Belitung National Tengah Tenggar Lampung Bengkulu Papua DKI Gorontalo Darussala Yogyakarta Jawa Jawa Maluku Jawa Sulawesi Sumatra Sumatra Kepulauan Sulawesi Sulawesi Bangka Sumatra Sulawesi Tenggara Tenggara Kalimantan Aceh Kalimantan Kalimantan Kalimantan Sulawesi Nusa Nusa Nanggroe Subnational infrastructure expenditure per capita Share of subnational infrastructure per capita Source: World Bank sta estimates based on MoF data. Althoughdecreasing,districtgovernmentsstillcontributethelargestsharetototalinfrastructureexpenditure. In 2002, about 78 percent of regional infrastructure expenditure came from district governments. By 2005, this has decreased to 45 percent, which is 2.5 percentage points below the district average in Indonesia (SIKD, 2005). However, provincial infrastructure spending has increased signi cantly. Since 2002, provincial infrastructure spending increased sevenfold from Rp 7.5 billion to Rp 52.9 billion in 2005. In 2005, the provincial government contributed 21 percent to total infrastructure spending, a larger share than any other province in Indonesia. Table 4.6. Regional infrastructure expenditure 2002 2003 2004 2005 Rp bn % Rp bn % Rp bn % Rp bn % Province 7.5 8 60.5 34 50.0 24 52.9 21 District 75.2 78 85.4 48 125.5 61 110.2 45 Deconcentrated 13.4 14 33.7 19 30.3 15 84.3 34 Real total regional expenditures 96.1 100 179.6 100 205.7 100 247.3 100 Nominal total regional 78.9 153.6 187.1 247.3 expenditures Per capita (Rp) 143,975 186,453 228,429 288,022 Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Prices at constant 2005. 56 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors Asigni cantshareofregionalinfrastructurespendingisdrivenbythecentralgovernment. Bothdeconcentrated spending and the DAK are central transfers earmarked for speci c infrastructure sub-sectors. In 2005, deconcentrated spending constituted 35 percent of total regional infrastructure expenditure and was entirely earmarked for irrigation. DAK transfers are earmarked cash transfers from central government that, once expended, are recorded as sub-national spending (either district or provincial governments). However, DAK grants must be spent within the scal year and cannot be reallocated by the district. DAK transfers constituted about one quarter of 2005 district infrastructure expenditure and were allocated for roads (65 percent), irrigation (23 percent), and drinking water (12 percent). The priority given to infrastructure varies widely between districts. Kabupaten Gorontalo and Kota Gorontalo spent a low 11.6 percent and 8.9 percent, respectively, of their total district expenditure on infrastructure, while Kabupaten Pohuwato and Kabupaten Bone Bolango, the two newest districts, spent 24.6 percent and 30.6 percent, respectively. As new districts, Bone Bolango and Pohuwato need to allocate higher shares of spending to build the physical infrastructure required for district government agencies, such as o ce buildings. This is a normal occurrence in new districts and provinces, especially in the early years of their establishment (Figure 4.11). Figure 4.11. New districts spent higher shares on infrastructure, 2005 30 (%) 25 spending total 20 to 15 spending 10 infrastructure 5 of Share 0 Pohuwato Provincial Bone Bolango Boalemo Kabupaten Kota Government Gorontalo Gorontalo Source: Gorontalo PEA database, University of Gorontalo, 2007. The majority of sub-national infrastructure spending in Gorontalo is capital spending, while maintenance has been neglected. While maintenance is a neglected area nationally, in Gorontalo this imbalance is even greater than seen in other regions of the country. Capital expenditure accounts for 91 and 79 percent of district and provincial infrastructure expenditures, respectively, far larger than the average for other districts and provinces nationally, at only 71 and 64 percent, respectively (Annex E.14). Only 2 percent of district infrastructure expenditure goes towards maintenance. The lack of maintenance spending is also evidenced by the fact that the condition of Gorontalo's roads, especially national level roads, is in decline. Only 44 percent of Gorontalo's roads are currently considered to be in good condition, while only 37 percent are categorized as being in poor/bad condition (Annex E.13). There is an urgent need to reallocate resources towards higher maintenance spending on roads. Further delays in allocating resources to maintenance will erode the quality of roads and, in the long term, result in additional spending to rebuild badly damaged roads. Service Delivery and Financial Management in a New Province 57 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis Figure 4.12. Economic classi cation of infrastructure spending, 2005 Districts/cities Province 4.1 % 1.9 % 2.2 % 9.1 % 0.7 % 12 % Personnel Personnel Goods and services Goods and services Maintenance Maintenance Travel Travel Capital Capital 78.9 % 91.1 % Source: Gorontalo PEA database, University of Gorontalo, 2007. Most infrastructure capital spending in Gorontalo went towards roads, bridges and buildings. In 2005, these items accounted for 61 percent of total infrastructure capital spending. The largest share, at 37 percent, went to roads and bridges. Bone Bolango, Pohuwato and the provincial government were the biggest spenders on roads and bridges: Bone Bolango spent 89 percent, Pohuwato spent 49 percent and the provincial government spent 34 percent of their total infrastructure capital expenditures on these items. Spending on buildings was also signi cant at the provincial government and Kabupaten Gorontalo (Figure 4.13). Figure 4.13. Infrastructure capital spending by sub-national governments in Gorontalo, 2005 70 bn) 60 (Rp 50 spending 40 30 capital 20 10 Sub-national Province Kab. Pohuwato Bone Bolango Boalemo Kota Government Gorontalo Gorontalo Roads and bridges Buildings Irrigation Equipment Others Source: Gorontalo PEA database, University of Gorontalo, 2007. Recommendations: Infrastructure Maintaintheproportionoftotalexpenditurespentoninfrastructure. The trend towards increasing infrastructure spending as a share of sub-national spending reversed in 2005, although total nominal expenditures continued to rise. Both districts and the province reduced their share of infrastructure spending in 2005, although this decline was reversed in 2006. In future years, allocations for infrastructure need to be maintained. Low infrastructure allocations in Kabupaten Boalemo, Kabupaten Gorontalo and Kota Gorontalo need to be veri ed against local needs and, if possible, adjusted upwards. Increase allocations for the maintenance of infrastructure. While it is important to expand infrastructure in Gorontalo, it is even more important to ensure that the infrastructure built is maintained to maximize the life of the assets. The rate of return from investing money in maintenance is higher than for new capital investments. To date, Gorontalo's governments, especially district governments, have allocated far too little for the maintenance of infrastructure, not just for roads, irrigation, electricity, water or sanitation, but also infrastructure related to health and education. 58 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors Improve the spending mix between sub-sectors. Within the infrastructure sector, improving access to sanitation and safe water will be crucial in improving Gorontalo's socio-economic standards. This is especially the case in access to these services for lower income groups. Sanitation outcomes are the lowest in the country and the close correlation between sanitation and health outcomes highlights its importance. In addition, access to safe water is particularly low for the poorest segment of the population. Additional spending should be allocated to public facilities that provide higher levels of access to sanitation and improved water sources for lower income groups. Health Sector Increasing numbers of people in Gorontalo are su ering from poor health. Morbidity in Gorontalo increased to 39 percent of the population in 2005, 12 percentage points higher than morbidity in Indonesia as a whole. Other health outcomes, such as recent increases in child malnutrition, and high infant and child mortality rates (77 and 97 per 1,000 live births, respectively) suggest that Gorontalo is facing some of the most severe health issues in the country. As highlighted in the previous section, one of the factors behind these disappointing health outcomes could be low levels of access to safe water and sanitation. Most of those with reported illnesses rely on self-treatment. The share of sick people who do not receive any form of treatment is lower in Gorontalo than in the rest of Indonesia. However, analysis of the types of treatment received indicates that a high share of sick people resort to self-treatment. This type of treatment is less optimal than when a health worker is visited (Figure 4.14). As elsewhere in Indonesia, the proportion of sick people who receive treatment at a (public or private) health facility has declined and reliance on self-treatment risen, although the proportion of those treating themselves has risen relatively more in Gorontalo than in the country as a whole. Figure 4.14. Health services utilization, 2005 Districts/cities Province 2.5% 5.4% 3.6% Any mixture Any mixture 14.8% 17.4% 14.3% Private medical Private medical facility facility Public medical Public medical facility facility Non-medical Non-medical 16.2% 13.9% facility visit only facility visit only Self-treat only Self-treat only 0.8% No treatment No treatment 6.5% 50.6% 54.0% Source: World Bank sta calculations based on Susenas, 2005. The utilization of preventive health services is relatively low. The immunization rate for measles is just above the national average. However, with only 80 percent of one-year-olds receiving measles immunization, Gorontalo has failed to achieve the 90 percent immunization rate set by the Ministry of Health. Less than two out of three pregnant women deliver their babies in the presence of a quali ed birth attendant, the fth lowest level across all provinces. In addition, the percentage of pregnant women who seek antenatal care is signi cantly lower in Gorontalo than in other provinces (IDHS21 02/03). Compared with other provinces in Indoneia, access to healthcare facilities and providers is relatively high but large inequalities exist between districts. A regional comparison indicates that access to doctors is relatively high, with a higher ratio of doctors per population and a smaller service area per doctor. Gorontalo's provincial-wide 21 Indonesia Demographic and Health Survey. Service Delivery and Financial Management in a New Province 59 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis ratio of 1.7 doctors per 10,000 people is higher than the national average of 1.3 doctors. Despite this, four of the ve districts in Gorontalo are below the national average. Only Kota Gorontalo, at 3.8 doctors per 10,000 people, is above the national average and this very high coverage greatly exaggerates Gorontalo's provincial-wide gure (Table 4. 7). Similarly, the average service area for a doctor in Kota Gorontalo is only 1.6 km2, while the other four districts have service areas ranging between 105.2 km2 in Kabupaten Gorontalo to a very high of 385.2 km2 in Kabupaten Pohuwato. The provincial-wide ratio of midwife services is well above average (9.1 midwives per 10,000 people), and is the second highest access in the country. However, similar to doctors, the ratio of midwives per 10,000 people in three of the ve districts is signi cantly lower than the national average, showing huge variations between districts. These data do not provide details on whether the majority of midwives are from the public or private sector. A further in-depth analysis of these numbers would be required to determine whether there are su cient public healthcare workers in Gorontalo. Table 4.7. Access to healthcare services in Gorontalo, 2005 Doctors/ Midwives/ Average service Average Doctors Midwives 10,000 10,000 area per doctor service area population population (km2/doctor) per midwife Kota Gorontalo 56 213 3.8 14.4 1.6 0.4 Kab. Gorontalo 36 320 0.9 7.7 105.2 11.8 Kab Boalemo 14 80 1.3 7.6 191.3 33.5 Kab. Bone Bolango 17 117 1.4 9.5 123.1 17.9 Kab. Pohuwato 12 67 1.1 6.3 385.2 69.0 Province average 135 797 1.7 9.1 100.2 17.0 Source: Health Pro le, 2005. The utilization rates of Gorontalo's public health facilities are higher than those in the rest of Indonesia but facilities fail to target the poor. The average utilization rate in Gorontalo (8 percent) is slightly higher than the average for other eastern Indonesia provinces (7 percent), the national average (5 percent) and the average for new provinces (4 percent). However, Gorontalo's public health facilities utilization rates are higher for the richer segments of the population than poorer income groups (Figure 4.15). This unequal access could be because of more di cult access for the poor, for example because the poor tend to live in remote regions with fewer doctors, midwives and health facilities. Equally, medical fees may be an important factor in reducing access for the poor. In the absence of clear adapt, it would therefore be bene cial for Gorontalo to conduct further research into why the poor are not utilizing public healthcare services as frequently as richer income groups. Figure 4.15. Public health facility utilization is higher than regional averages 12 10 8% (%) 8 7% 5% 6 Utilization 4% Quintile 1 (Poorest) 4 Quintile 2 Quintile 3 2 Quintile 4 Quintile 5 (Richest) 0 Average Gorontalo Eastern New Provinces National Average Indonesia Average Average Source: World Bank sta estimates based on Susenas, 2006. Note: The averages for eastern Indonesia and the new provinces exclude Gorontalo. 60 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors Health Expenditure Health expenditure in Gorontalo increased rapidly between 2002 and 2005. Realized total regional health spending in Gorontalo (district, province and deconcentrated) increased by 342 percent over the period. In the same period, per capita spending increased from Rp 81,280 to Rp 363,920 (Figure 4.16). Sub-national expenditure (district and province) also increased, but at 126 percent this increase was far more modest than the increase of 632 percent in deconcentrated health spending. Figure 4.16. Trends in regional health expenditure 320 10.9 12 10.6 280 10 240 7.9 prices) 6.9 8 200 2005 160 6 % 281 120 4 (constant 80 159 bn 114 2 Rp 40 63 0 0 2002 2003 2004 2005 Health expenditures (L) Share of total expenditures (R) Source: Gorontalo PEA database, University of Gorontalo, 2007. Sub-national health expenditures are slightly higher than average. Since the establishment of the province, the health sector has received the fourth highest share of total sub-national spending. Gorontalo's district and provincial governments spent 7.9 percent of total expenditure on health, slightly higher than the national average of 7.1 percent. In 2005, Gorontalo's sub-national per capita health spending of Rp 90,200 was also signi cantly higher than the national average of Rp 59,700. Gorontalo is the twelfth highest health spender in nominal terms out of Indonesia's 33 provinces (Figure 4.17). Figure 4.17. Cross province sub-national health spending, 2005 350 10 300 8 250 ) (Rp'000) 6 (% 200 capita share 150 4 per 100 2 spending 50 Sub-national 0 0 Health Barat Barat Riau Aceh Riau Bali Papua Timur Jambi Utara Barat Barat Utara Utara Barat Timur Barat Tengah Tengah Selatan Maluku Jakarta Selatan Selatan Belitung National Tengah Banten Gorontalo Tenggara Bengkulu Tenggara Lampung Papua DKI Yogyakarta Jawa Jawa Maluku Jawa Sulawesi Sumatra Kepulauan Nanggroe Nusa Sulawesi Sumatra Tenggara Sulawesi Kalimantan Kalimantan Bangka Sumatra Sulawesi Kalimantan Kalimantan Sulawesi Nusa Per capita sub-national health expenditure (L) Share of subnational health expenditure (R) Source: Gorontalo PEA database, University of Gorontalo, 2007. Service Delivery and Financial Management in a New Province 61 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis Previously, district expenditures drove regional health spending, but deconcentrated spending has dominated since 2004. From 2002 to 2004, district governments spent about half of Gorontalo's health expenditure. In 2005, while district health spending remained static deconcentrated spending increased by 142 percent. This made deconcentratedspendingonhealththelargestcontributortoGorontalo'stotalhealthexpenditure,at71percentversus only 28 percent coming from districts. Deconcentrated health spending increased from Rp 27.2 billion in 2002 to Rp 199.1 billion in 2005, a 427 percent increase. This is consistent with the overall increase in deconcentrated spending for Gorontalo. Since 2002, Gorontalo has received among the six highest per capita deconcentrated allocations across all 33 provinces. Together, district health spending and deconcentrated health spending represent about 98 percent of total regional health expenditures. Table 4.8. Regional health expenditures (province + district + deconcentrated) 2002 2003 2004 2005 Rp bn % Rp bn % Rp bn % Rp bn % Province expenditures 1.8 3 2.1 2 3.2 2 4.5 2 District expenditures 34.4 54 57.8 51 73.3 46 77.5 28 Deconcentrated expenditures 27.2 43 54.5 48 82.4 52 199.1 71 Total regional health expenditures (2005 63.5 100 114.5 100 158.9 100 281.1 100 prices) Nominal total regional health 52.1 97.9 144.5 281.1 expenditures Per capita (Rp) 81,280 149,571 190,581 363,920 Source: Gorontalo PEA database, University of Gorontalo, 2007. In 2005, the provincial government only contributed 2 percent to Gorontalo's total regional health spending. Furthermore, the provincial government contributed a mere 6 percent of total sub-national health expenditures (districts and province), dramatically lower than the national average of 25 percent. Per capita provincial health expenditure in Gorontalo in 2005 (Rp 5,000) was also signi cantly lower than the average provincial per capita spending (Rp 15,000). Such low per capita provincial spending poses the question of whether the provincial health bureau can ful ll its responsibilities e ectively. With the exception of Kota Gorontalo, all districts in Gorontalo spent about 6 percent of total expenditure on health, a similar level to districts in other provinces. Kota Gorontalo, however, was an exception, spending 20 percent of its total expenditure on health in 2005. In terms of per capita health spending, only Kabupaten Gorontalo (Rp 57,000) is signi cantly lower than the national district average of Rp 93,000. Boalemo's per capital health spending is similar to the district average, at Rp 83,000. The two new districts of Bone Bolango and Pohuwato initially had low health expenditures but by 2005 had increased their per capita spending to Rp 123,000 and Rp 128,000, respectively, signi cantly higher than the district average. Not surprisingly, given Kota Gorontalo's focus on the health sector, per capita health spending is signi cantly higher there than in other districts in Gorontalo and even the rest of Indonesia. 62 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors Figure 4.18. District health expenditures, 2005 250 12 10.1 % 10 200 8.1 % 8 (%) '000) 150 6.3 % 6.4 % 5.9 % spending 5.8 % (Rp 6 district of spending health 100 193 capita 4 Share Per 123 128 health District 50 96 84 2 57 0 - Kab Bone District Kota Boalemo Average Bolango Gorontalo Pohuwato Gorontalo per capita (L) share (R) Source: Gorontalo PEA database, University of Gorontalo, 2007 Salaries dominate both provincial and district-level health expenditures. In 2005, the Gorontalo provincial government spent almost 60 percent of its total health expenditure on salaries. This is higher than the average provincial government average (Figure 5.13). At the district level, about 40 percent of health expenditure went towards salaries. While 40 percent may seem a signi cant proportion of health spending, it is nonetheless lower than the district average nationally, at 56.1 percent. Although shares of health spending allocated to salaries di er greatly between the ve districts, per capita health salary expenditure is similar, in a tight range of Rp 26,463 to Rp 27,968. Aswithothersectors,bothdistrictandprovincialgovernmentsspendverylittleonmaintenance. In Gorontalo, health maintenance spending accounts for only 2.2 percent of district governments'health expenditures and only 3.7 percent of the provincial government's health spending. This is slightly lower than national averages, at 3.9 percent for districts and 5.2 percent for provinces (Table 4.9). Nationally, maintenance spending in the health sector is low mainly because the scal space available at the district and province levels is modest and because most sub-national expenditures go towards non-discretionary items, such as personnel spending (World Bank, 2007a). Table 4.9. Economic classi cation of health expenditures, 2005 Percent Gorontalo Indonesia Districts Province Districts Province Wages 39.5 57.3 56.1 44.7 Goods and Services 24.4 23.6 23.6 25.0 Travel 0.7 9.2 1.4 7.1 Maintenance 2.2 3.7 3.9 5.4 Capital 33.2 6.2 14.5 17.9 Other 0.0 0.0 0.6 0.0 Total 100 100 100 100 Source: Gorontalo PEA database, University of Gorontalo, 2007 Almost one-third of Gorontalo's sub-national health expenditure is allocated to capital spending, which is signi cantly above the provincial average of 16 percent. The majority of capital expenditure goes towards new buildings and o ce equipment (43 percent) and medical equipment (38 percent). Only 6 percent is spent on health programs (Figure 4.19). This is of concern, given that building up health infrastructure and facilities, especially in a new province, is extremely important. Going forward, it will be crucial for Gorontalo to allocate resources towards programs Service Delivery and Financial Management in a New Province 63 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis that target speci c health outcomes, such as reducing morbidity and self-treatment. Since Gorontalo became a province, while nominal sums allocated to the health sector may have increased signi cantly, these additional funds seem to have failed to translate into improved health outcomes. Figure 4.19. Allocation of sub-national health capital expenditure, 2005 6% 2% 11% equipment Doctor equipment and 43% medication Transport Programs Other 38% Source: Gorontalo PEA database, University of Gorontalo, 2007. Household out-of-pocket spending is signi cant, but Gorontalo households spend less on healthcare than nationally. Gorontalo households contributed an estimated Rp 70 billion in 2005 to health spending, almost the same amount as total district health expenditure. In 2005, 3.0 percent of monthly household spending went towards healthcare, similar to the national average. However, on a per capita basis households in Gorontalo have consistently spent signi cantly less on health than the Indonesian average (Table 4.10). Table 4.10. Per capita monthly out-of-pocket health expenditures 2002 2003 2004 2005 2006 Gorontalo Per capita (Rp) 6,306 3,961 4,685 6,441 6,106 Share (%) 4.0 2.3 2.7 3.0 2.7 Indonesia Per capita (Rp) 10,254 8,154 8,491 9,045 8,913 Share (%) 4.3 3.2 3.4 3.1 2.8 Source: World Bank sta estimates based on Susenas, BPS. Note: Prices are constant 2005. Higher rates of insurance coverage, higher dependence on self-treatment and lower utilization of private healthcare services all result in lower health expenditures. Gorontalo has signi cantly higher insurance coverage among its population, which helps to explain relatively low out-of-pocket health spending. One third of the population is insured, seven percentage points higher than national average coverage. The di erence is attributable to healthcard coverage, a government program that entitles the poor to free primary and third-class secondary healthcare. Since 2005, this program has been converted into the Askeskin program (Annex E.12). Given that Gorontalo is one of the poorest provinces, high coverage is to be expected. Other reasons that may contribute to lower out-of-pocket health spending include high poverty levels. This may mean that more sick people go untreated and avoid even self- treatment. Private healthcare utilization is also very low (World Bank, 2007a). Recommendations: Health Ensure that rural regions have equal access to healthcare service providers, especially doctors. Despite the relatively high average availability of healthcare workers in Gorontalo, there remain large discrepancies between urban and rural areas. Identifying ways to ensure that public and private healthcare workers provide healthcare in rural areas is crucial to improving access to healthcare services throughout the province and, in turn, in improving health outcomes. 64 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors Increasetheallocationofhealthspendingforprogramsthattargetspeci chealthissues,suchasimmunization, utilization and morbidity rates, and preventing or treating health threats. Currently, only 6 percent of sub- national health capital expenditure is allocated to health programs. This report highlights that increased spending in the health sector has resulted in improved overall access to health facilities and healthcare workers (except for strong variations between rural and urban areas), but that health outcomes remain low. Gorontalo has some of the lowest achievement levels in health indicators highlighted in the Millennium Development Goals. Preventive services such as midwife services and immunization coverage are under-used, while availability and access to health outcome- related infrastructure, such as clean drinking water and sanitation, are among the lowest in Indonesia. Therefore, it is important for Gorontalo's provincial and district governments to design and implement programs to target these issues if they are to improve health outcomes across the province. Increase sub-national spending on health. Currently, 71 percent of regional health spending is contributed by central government through deconcentrated spending. Health is one of the key areas that have been decentralized. Hence, sub-national government, in particular district governments, should be playing a leading role in providing public health services. In view of this, district government spending on health should come to dominate regional health spending going forward. Increase the allocation for maintenance spending. Both the province and the districts spent less then 5 percent of all health spending on maintenance in 2005. This is below the national average for both the provincial and district levels. If facilities are in such a poor state that it is impossible to o er good quality health service delivery, then even if doctors are available health outcomes will be undermined. Agriculture, Fisheries and Forestry Sector While the total number of agricultural workers is decreasing, the sector remains the main employer in Gorontalo. Between2002and2006,thenumberofagriculturalworkersdeclined,althoughthenumberofhouseholds dependent on agriculture remained the same. More than 50 percent of the workforce in Gorontalo depends on agriculture, higher than the Indonesian average of 42 percent. Figure 4.20. Employment sectors in Gorontalo, 2005 Male Female 18 % 18 % Agriculture Agriculture 12 % Trade 13 % 53 % Trade 57 % Services Services 13 % Others Others 16 % Source: World Bank sta estimate based on Susenas, 2005 One third of regional output comes from agriculture. Regional GDP in agriculture increased 18 percent between 2002 and 2005. Exports of corn and sh products have increased fourfold and vefold, respectively. Investment in road transportation, irrigation and storage rooms has boosted productivity in the corn industry and helped to drive the increase in exports (Marsuki, 2006c). The provincial government has given considerable support to the agriculture sector. According to provincial o cials, three programs are the drivers of change in the agriculture sector, namely (i) a `good quality'program; (ii) an agribusiness capital program; and (iii) a good quality corn products program. Newly developed policies include using feedback from sub-district heads on corn eld conditions and enabling district governments to respond to local needs. Service Delivery and Financial Management in a New Province 65 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis An example of developing awareness in both the agriculture and shery sectors includes the development of show- windows as part of an information dissemination strategy. Although most of the groundwork -- raising resources, and raising the awareness of private companies and the central government to the potential of the agriculture sector -- has been completed, policy changes and their impact have still to be felt on the ground. Furthermore, agricultural policy is mainly driven by the provincial government and has not yet been fully adopted by the districts or the people of Gorontalo. It will therefore require several years before agricultural output can be fully optimized. Productivity in agriculture has increased. Investment in corn seems to have paid dividends: corn productivity has increased by 30 percent over a four-year period and corn exports have increased almost sevenfold since 2002 (from 6.7 to 52.2 tons).22 Although there is room for further gains, current productivity is relatively high (Figure 4.21). Rice productivity, on the other hand, has decreased slightly. Speci c causes for this decline have yet to be identi ed, but provincial government attention is shifting towards rice production to ensure that rice is not neglected and continues to be given adequate support. Figure 4.21. Trends in corn and rice productivity 50 46 44 45 45 45 45 43 43 40 37 ) 35 31 32 35 30 33 31 (100kg/Ha 29 tivity 20 oducrP 10 0 2002 2003 2004 2005 Rice Gorontalo Rice Indonesia Corn Gorontalo Corn Indonesia Source: World Bank sta calculations based on Dinas Pertanian data. Agriculture, Forestry, and Fisheries Expenditure Total regional expenditure (district, province and deconcentrated) on the agriculture, sheries and forestry sub-sectors (AFF) more than tripled between 2002 and 2005. AFF expenditure increased steadily between 2002 and 2004, and then surged by 164 percent in 2005. Per capita spending on these three sub-sectors increased from Rp 97,692 to Rp 316,125 during the same period (Table 4.11). However, sub-national expenditures (district and province) increased by only 12 percent over the same period, showing the majority of the increase in spending was driven by deconcentrated expenditure. Allocations in 2006 suggest that total regional expenditure will continue to increase signi cantly if previous levels of deconcentrated spending are maintained. However, given the increasing reliance on deconcentrated spending, the issue of sustainability needs to be taken into account. 22 Dinas Pertanian. 66 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors Figure 4.22. Trends in regional agriculture, sheries and forestry spending 350 12 10.8 300 9.0 10 250 7.4 8 6.5 200 2005) 6 % 150 288 (Real bn 4 100 Rp 173 50 109 2 83 94 54 50 59 0 0 2002 2003 2004 2005 Regional expenditures (L) Agricultural expenditures (L) Share of total expenditures (R) Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Due to the aggregation of the three sectors in deconcentrated spending, the sectors are discussed as one. Sub-national expenditures on the AFF sub-sectors are relatively high compared with other provinces. Sub-national spending in Gorontalo on the AFF sub-sectors was Rp 68,100 per capita in 2005, against an average Rp 54,300 per capita across provinces. As a share of total expenditures, Gorontalo's spending on AFF was almost 2 percentage points higher than the average for other provinces. DeconcentratedspendinghasbeenthemaindriverforAFFspendinginmostyearsanditsrelativeimportance has increased over time. With the exception of 2002, deconcentrated spending has been the largest source of AFF spending. In 2005, deconcentrated AFF spending quadrupled and represented 78 percent of total AFF spending. Sub-national expenditures on AFF in 2005 remained at a similar level to 2004 (Table 4.11). As stated earlier, per capita AFF deconcentrated spending allocated to Gorontalo has historically been relatively high compared with the rest of Indonesia. Table 4.11. Breakdown of regional agriculture, sheries and forestry spending 2002 2003 2004 2005 Rp bn % Rp bn % Rp bn % Rp bn % Province 33.4 40 28.2 30 28.8 27 27.7 10 District 22.4 27 17.3 18 31.0 29 34.3 12 Deconcentrated spending 27.5 33 49.0 52 48.7 45 225.6 78 Real total regional expenditures 83.2 100 94.5 100 108.5 100 287.6 100 Nominal total regional expenditures 68.4 80.8 98.7 287.6 Per capita (Rp) 97,692 107,070 120,928 316,125 Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Current data do not allow breakdown of deconcentrated spending in the three sub-sectors. For the individual sectors the assumption is that deconcentrated spending is divided in similar rates as annual sub-national breakdown. Prices are based on 2005. Provincial contributions to the AFF sub-sectors are relatively high compared with the health and education sectors. In 2005, the provincial government spent Rp 27.7 billion on AFF, compared with only Rp 13.9 billion on education and Rp 4.5 billion on health. Even in infrastructure, the provincial government's second largest sector, spending was only Rp 52.9 billion. This illustrates the provincial government's acknowledgment that AFF is the foundation of Gorontalo's economy and that one of the ways of supporting expansion of AFF is by allocating more resources to these sectors. Service Delivery and Financial Management in a New Province 67 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis Provincial government spending on AFF carries certain disadvantages. Spending on AFF still depends to a large extent on contributions from the provincial government. However, the current balance not only runs the risk of provincial spending crowding out district spending, but it could also act as a disincentive to increased district-level ownership in what is one of the most important sectors for poverty reduction in Gorontalo. While the provincial government undoubtedly has an important role to play in promoting collaboration between district agricultural bureaus and research institutions, it has few other responsibilities in the AFF sector. District spending has been relatively low, but some districts have caught up since 2004. Although the contributions of districts both as a share and per capita towards district agriculture expenditure are low, they are nonetheless relatively high compared with other districts in Indonesia. District spending has steadily increased since 2002 and will increase further to 57 percent in 2006. The same trends are observed in sheries but not in forestry (Annex E.15). District variations highlight that the two new districts, Kabupaten Pohuwato and Kabupaten Bone Bolango, spent signi cantly more on agriculture per capita (Rp 56,000 and Rp 100,000, respectively) than the older districts. Kabupaten Boalemo is the only district that registered a decrease in real spending. Meanwhile, Kabupaten Gorontalo had the highest surface area of agricultural land but, possibly due to relatively lower total resources, spent below average on agriculture (Annex D.2). The DAK, an earmarked tool for central government spending, increases central involvement in district spending. District sheries expenditures, and to some extent district agriculture expenditures, are highly dependent on the central government's allocation of resources. The DAK contributes 65 percent of district expenditures to sheries and 20 percent of district agriculture expenditures. The DAK has the advantage that it can be distributed to districts reasonably quickly. However, districts have little in uence over DAK allocations, as these are pre-determined at the central level.23 Themajorityofresourcesareallocatedtotheagriculturesub-sector. In 2005, 16 percent of total sub-national AFF spending in Gorontalo was allocated to forestry, 24 percent to sheries, and the remaining 60 percent to agriculture. In previous years, there was little variation in allocations between the three sub-sectors. Only six provinces spent higher shares on agriculture, but in per capita terms the spending of these provinces was signi cantly lower than in Gorontalo. Given its high dependence on agriculture, the provincial government has raised awareness of the importance of the agriculture sub-sector with the aim of improving the welfare of people involved. As a result, a higher share of spending on the agriculture sub-sector is to be expected. Figure 4.23. Cross province sub-national AFF spending, 2005 250 200 150 2005) (real bn 100 Rp 50 0 Riau NTT Bali NTB Papua Timur Utara NAD Jambi Barat Utara Barat Utara Timur Barat Tengah Tengah Maluku Selatan Selatan Selatan Jakarta Tengah Banten National Gorontalo Tenggara Bengkulu Belitung Lampung Yogyakarta DKI Jawa Jawa Maluku Sulawesi DI Jawa Sumatera Sumatera Kalimantan Sulawesi Kalimantan Sulawesi Bangka Sumatera Kalimantan Kalimantan Sulawesi Agriculture Fisheries Forestry Source: Gorontalo PEA database, University of Gorontalo, 2007. 23 Interview with sta of Provincial Agriculture Bureau. 68 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 4 Investing in the Strategic Sectors In both the sheries and agriculture sub-sectors, human resource spending is relatively low, while capital expenditure is relatively high. Despite relatively di erent patterns of economic allocation between the sub- sectors, a comparison of provincial government spending indicates that relatively little is spent on salaries, with most spending on capital expenditure (Annex E.16 and Annex E.17). This suggests that more attention is given towards improving infrastructure and program spending than building human resource capacity in AFF. Spending on goods and services is also relatively low, although provincial agriculture spending on goods and services at 40 percent of total agriculture expenditure is relatively high. While other sectoral spending classi ed as goods and services is mainly used for government administration, almost half of the provincial agriculture goods and services budget is spent on agricultural seeds. Figure 4.24. Economic classi cation of spending on agriculture and sheries, 2005 Agriculture Agriculture Districts/cities Province Travel, maintenance, Travel, maintenance, 8 % 7 % and other and other 34 % 19 % Capital Capital 45 % 36 % Goods and Goods and services services 11 % Personnel 40 % Personnel Fisheries Fisheries Districts/cities Province 2 % Travel, maintenance, Travel, maintenance, and other 21 % 26 % and other 29 % Capital Capital 6 % Goods and Goods and services 71 % 21 % services 24 % Personnel Personnel Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Economic classi cation gures are for 2005. At the district level, economic allocations vary. This illustrates how di erent districts had di ering approaches to improving the AFF sub-sectors in 2005. In general, expenditures needed for human resources vary between one quarter and one third of total agriculture expenditures. Kabupaten Gorontalo, which spends least on agriculture, is an exception with 62 percent spent on human resources. Kabupaten Gorontalo is focusing its spending on improving the capacity of its civil servants and people involved in AFF. Kabupaten Pohuwato is at the other extreme, allocating almost half its agriculture spending on goods and services, and only one third on capital goods. Kabupaten Boalemo spends only 2 percent on goods and services, and 67 percent on capital expenditure. As with Kabupaten Boalemo, the current allocations of Kabupaten Bone Bolango keep salaries at around 30 percent of total AFF spending and allocate a larger share to capital expenditures (Figure 4.25). Service Delivery and Financial Management in a New Province 69 CHAPTER 4 Investing in the Strategic Sectors Gorontalo Public Expenditure Analysis Figure 4.25. Economic classi cation of AFF spending by district, 2005 100 22 21 29 80 45 7 2 25 8 67 60 (%) 3 7 47 Share 40 21 14 62 2 20 33 31 29 23 Kota Gor BonBol Kab Gor Pohuwato Boalemo Wages Goods and Services Travel Maintenance and other Capital Source: Gorontalo PEA database, University of Gorontalo, 2007. Note: Economic classi cation gures are for 2005. Recommendations: Agriculture, Fisheries and Forestry Improve the balance between province and district-level spending in agriculture. District governments should be encouraged to increase their share of spending on agriculture to levels more in line with the national average, and assume a more proactive role in boosting the sector and indirectly helping to reduce poverty rates. Being closest to agricultural communities, district governments are best placed to nd solutions to the problems facing this sub- sector. Increased district government spending should focus on: (i) in addition to the provincial support for crop diversi cation into the cultivation of corn, diversifying agriculture into other higher-value crops and livestock; and (ii) developing marketing and information technology for agriculture and rural SMEs. Increase spending e ciency by improving the economic allocation of expenditures and allocation of district capital expenditure. Disparities in district agriculture expenditure highlight the need to reallocate resources according to economic classi cations. Districts face di erent expenditure excesses that reduce the resources available for essential expenditure items. On average, capital expenditure is appropriately high. However, functional allocation of spending highlights a need to move away from expenditures on physical infrastructure and towards human resource development. 70 Service Delivery and Financial Management in a New Province Chapter 5 Public Financial Management Processes at the Provincial and District Levels Gorontalo Public Expenditure Analysis CHAPTER 5 Public Financial Management Processes at the Provincial and District Levels Gorontalo Public Expenditure Analysis Overview This chapter reports on the survey results of performance in public nancial management (PFM) by the provincial and district/city governments. The PFM framework is a tool developed by the World Bank and the Ministry of Home A airs (MoHA) to assess the capacity of sub-national governments in nancial management. The tool is based on a balance scorecard system with nine strategic areas that are key to e ective PFM: local regulatory framework; planning and budgeting; cash management; procurement; accounting and reporting; internal audit; public debt and investment; asset management; and external audit/oversight. The PFM survey in Gorontalo was conducted in the period 6-24 February 2007 and covered the provincial government and ve districts within the province, excluding Kabupaten Gorontalo Utara, which was only established in early 2007 (Annex C). Gorontalo performed well, both at the provincial and district/city levels (Figure 5. 1). The survey reveals that the province is relatively strong despite being newly established. On average, areas scoring well were in accounting and reporting (80 percent), internal monitoring (77 percent), external audit and supervision (76 percent), and planning and budgeting (74 percent). Gorontalo province and Kabupaten Gorontalo performed better than other districts in the province. At the provincial level, the recruitment of o cials with PFM expertise, together with structural and functional reforms, has contributed to higher scores. The fact that Gorontalo province subsequently reported its 2007 budget within the time limit set by the MoF and has always passed State Audit Agency (BPK) audits with excellent ratings also contributed to the high scores for external audit and supervision. Kabupaten Gorontalo is currently a benchmark for procurement in the province because of its open and timely procurement processes. This is despite the fact that Kabupaten Gorontalo su ers similar resource limitations as elsewhere. Figure 5.1. Gorontalo's scores are among the highest surveyed KotaBlitar Gorontalo Province Gorontalo Sleman KotaGorontalo AcehUtara Boalemo Pohuwato BoneBolango KotaBandaAceh Simeulue AcehTimur AcehBesar KotaLangsa AcehSingkil AcehPidie Regulatory framework Gayo Lues Planning and budgeting Bireuen AcehTenggara Cash management KotaSabang AcehBarat Procurement AcehTamiang Accounting and reporting AcehSelatan Nias Internal monitoring AcehTengah Debt and public investment NaganRaya KotaLhokseumawe Asset management AcehBarat Daya External audit and supervision M ener M erah AcehJaya Nias Selatan 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: World Bank sta calculations based on various PFM survey results. 72 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 5 Public Financial Management Processes at the Provincial and District Levels In less than six years, the provincial government has succeeded in rolling out several signi cant PFM reforms: (i) the merging of the Finance Bureau and Revenue Unit into one comprehensive Financial Management Unit (Badan Pengelola Keuangan Daerah) ahead of the central government's deadline; (ii) improving PFM processes through streamlining the provincial bureaucracy; and (iii) building human resources and institutional capacity. But the lack of capacity is still a major constraint in PFM. The survey also found that the lack of capacity is still a main impediment to high PFM performance in Gorontalo, both at the provincial and district/city levels. There is also a serious capacity gap between the two levels. The greatest challenge facing the provincial government lies in spreading the reform agenda to the districts, including the building of capacity. Table 5.1. Results of the PFM survey in nine strategic areas Percent Gorontalo Kota Bone Gorontalo Boalemo Pohuwato Average Province Gorontalo Bolango Regulatory framework 68 60 52 48 44 28 50 Planning and budgeting 75 58 85 75 83 66 74 Cash management 86 82 73 80 55 52 71 Procurement 63 62 83 60 58 62 65 Accounting and reporting 78 89 74 81 70 85 80 Internal monitoring 89 83 89 61 78 61 77 Debt and public investment 63 75 63 38 25 63 55 Asset management 68 64 55 32 41 32 49 External audit and 89 78 78 56 78 78 76 supervision Total 75 70 75 64 62 58 67 Source: World Bank sta calculations based on PFM survey data, 2007. Regulatory framework Law No. 22/1999 on Regional Autonomy is one of two major decentralization laws that initiated the so-called "big-bang" decentralization through the delegation of functions and responsibilities to the regions. One such responsibility is that provincial and district governments manage their own public nances, as stated in Law No. 25/1999 on Fiscal Balancing, and in the revised Law No. 33/2004 on Fiscal Balancing in 2004. The province is performing well in terms of PFM regulatory framework performance. This strategic area looks at: (i) the existence of a relevant and comprehensive local regulation; (ii) e ective law enforcement and organizational structure; and (iii) promotion of transparency and participation. The survey result shows that the province scored well but there are still areas where improvements can be made, especially in the districts. The province performed best (68 percent), while the newest districts, Pohuwato and Bone Bolango, were the lowest performers. The provincial government has embraced the dynamic changes initiated at the national level. One of the main di culties for regions is to accommodate the guiding laws and regulations from the central level, and translate them into technical rules and regulations applicable to the regional level. In the case of Gorontalo, the provincial government has passed a set of supporting regulatory frameworks that ensure more e ective PFM and a system that is consistent with the national framework. One example is in encouraging regional investment. Here the provincial government responded with a regional regulation (peraturan daerah, or Perda) on regional investment,24 which releases investors from paying retributions to the provincial government. 24 Gorontalo Province Regional Regulation No. 2/2004. Service Delivery and Financial Management in a New Province 73 CHAPTER 5 Public Financial Management Processes at the Provincial and District Levels Gorontalo Public Expenditure Analysis Figure 5.2. The dynamics of PFM legal frameworks at the provincial level in Gorontalo Legal 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Frameworks UU UU 15/04 22/99 UU UU UU Law (UU) UU 38/00 17/03 32/04 25/99 UU 33/04 PP 104/00 PP Government PP 24/05 Regulation PP 8/06 PP 7/07 105/00 PP (PP) PP 58/05 108/00 Technical Kepmendagri Permendagri Permendagri Regulation 29/02 13/06 30/07 Regional Perda Perda Regulation 39/02 3/06 (Perda) APBD APBD APBD APBD APBD APBD APBD Product 2002 2003 2004 2005 2006 2007 2008 Source: University of Gorontalo. However, PFM regulatory frameworks still lag well behind at the district level. Most districts have few if any regional PFM regulations in place and, even where they do, enforcement is low. Kabupaten Gorontalo is ahead of other districts in the province and has a regional regulation on PFM25 in place. However, this has not been updated for more than four years, creating problems. For instance, in this Perda spending is still classi ed as"apparatus and public expenditures", which is now outdated. This also applies to Kabupaten Boalemo, which also has a regional regulation in place.26 Other districts are preparing regional regulations and therefore still referring to the national regulations. The current national regulation on regional budgeting classi es expenditures as"direct"and"indirect"expenditures. Planning and Budgeting The survey shows that the province and districts perform well overall in terms of planning and budgeting. This strategic area looks at: (i) consistent links between bottom-up planning, development and sector plans, and the budget; (ii) medium-term planning; (iii) reasonable and realistic budgeting; (iv) pro-poor budgeting; and (v) participatory monitoring and budgeting. Overall, the province and districts perform well. Kabupaten Gorontalo is the best performer, while Kota Gorontalo is the worst performer (Table 5. 1). Kabupaten Gorontalo performs well because of its good capacity in planning. Furthermore, a medium-term expenditure framework has been implemented in this distruct, although further optimization is required. Conversely, Kota Gorontalo is lagging because of limited resources and the lack of a poverty database, which prevents e ective pro-poor budgeting. The planning process at the provincial level is compliant with the regional planning system stipulated in Law No. 33/2004. Budget planning at the provincial level re ects the budget planning system at the national level, including long-term planning (20 years), medium-term planning ( ve years) and annual planning detailing the medium-term and the nancing prospects. 25 Gorontalo district Regional Regulation No. 44/2002 on Regional PFM. 26 Boalemo district Regional Regulation No. 1/2004 on Regional PFM. 74 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 5 Public Financial Management Processes at the Provincial and District Levels Gorontalo's provincial government applies a bottom-up mechanism in its planning process by involving multi-level stakeholders. The process, known as a Musrenbang, or community meeting, goes from the village level up to the national level. The results of this mechanism are fed into the short-term regional development plan (RKPD). At the same time, the DPRD (provincial legislature) conducts a consultative process called Jaring Asmara27 (Figure 5. 3), which is part of the annual planning process. The provincial government syncronizes the two consultative processes in the planning mechanism. The executive branch conducts the Musrenbang process from the village level up to the provincial level, while the legislative branch conducts a similar consultative process in parallel. The outputs of the Musrenbang and the Jaring Asmara are usually relatively consistent and disputes over the choice of priority programs are unusual. This may re ect the e ectiveness of the socialization mechanism. Through regular talk shows on the local radio involving regional government o cials and the governor, the community's participation in and contribution to the process is encouraged (Figure 5. 3). The link between planning and budgeting is still weak. Close coordination between working units and the budget team is lacking, particularly in the preparation and synchronization of planning and budgeting within each working unit. The reason for this is a shortage of planning and budgeting capacity in the working units. Such capacity is vital if the priorities in the RKPD are to be translated into relevant budget allocations.28 Figure 5.3. The planning process is synchronized with public consultations at the DPRD Provincial DPRD Government (Legislative) Time Syncronization in implementation Village MUSREMBANG JARING District MUSREMBANG ASMARA Province MUSREMBANG TALK SHOW RRI HALO GUBERNUR Provincial Short Term Development Plan (RKPD) Source: University of Gorontalo, 2007. 27 Jaring Asmara is short for jaring apirasi masyarakat, which literally means"capturing the aspirations of the people". 28 Based on an interview with a provincial BKD o cial. Service Delivery and Financial Management in a New Province 75 CHAPTER 5 Public Financial Management Processes at the Provincial and District Levels Gorontalo Public Expenditure Analysis Similar to other sub-national governments, provincial and district governments in Gorontalo have gone through three di erent budget formats since decentralization: Makuda, Kepmendagri No. 29/2002, and Permendagri No. 13/2006. The 2002 budget was a transitional budget using the Makuda format,29 even though Law No. 25/1999 on Fiscal Balancing had already been passed. The budgets in 2003-06 used a budget structure described in Ministerial Decree No. 29/2002 (Kepmendagri No. 29/2002), while the 2007 budget followed the format described in the new MoHA Ministerial Decree No.13/2006 (Permendagri No. 13/2006) on Regional Financial Management Guidance. Table 5.2. Evolving budget formats Makuda Format Kepmen 29 Format Permendagri 13 Format 1. Revenue 1. Revenue 1. Revenue - Carry over - Regional Own Source - Regional Own Source Revenue - Regional Own Source Revenue Revenue - Balancing Fund - Balancing Fund - Balancing Fund - Regional Borrowing - Other Revenue - Other Revenue - Other Revenue 2. Financing 2. Financing 2. Expenditure 3. Expenditure 3. Expenditure 2.1. Routine Expenditure 3.1. Apparatus Expenditure 3.1. Indirect Expenditure (excluding debt/interest - General Administration - Personnel payment) - Operational and (debt/interest payment) - Others (Assistance, interest, Misc) maintenance - Capital 2.2. Development Expenditure 3.2. Public Expenditure 3.2. Direct Expenditure - General Administration - Personnel - Operational and - Goods and Services maintenance - Capital - Capital Source: World Bank, 2005b. The provincial government has outlined two stages of budget reform. The rst stage is to develop public service policies, to socialize these and to develop a technical assistance strategy through key o cials who will drive the process forward. Gorontalo has contracted o cials from the central government who are now the key players for budget reform. These experts have been placed in strategic positions within the provincial government. The second stage is to strengthen the budgeting process through improvements in accounting procedures, capacity building and institutional reorganization. The process of improving provincial PFM has been ongoing since 2002. Since 2002, the provincial nancial statement has been audited by the State Audit Agency (BPK) as part of implementation of a regional accounting system (Table 5. 3). Since 2004, the statement has been publicized in the local press. Performance-based budgeting was implemented in 2003 and preparations to establish the BKD (single Financial Management Unit) started in 2002 and implemented in 2004. 29 Referring to Gorontalo province Regional Regulation No. 33/2002. 76 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 5 Public Financial Management Processes at the Provincial and District Levels Table 5.3. Provincial-level PFM reform agenda implementation No Description 2002 2003 2004 2005 1. Implementation of Annual report is Annual report is Annual report is Annual report is will Regional Accounting audited by BPK audited by BPK after audited by BPK before be audited System (Sistem after submission to submission to DPRD, submission to DPRD, Akuntansi Keuangan DPRD, WTP. WTP. WTP. by BPK before Daerah ­ SAKD) submission to DPRD, WTP. Financial statement publication in public media Financial statement publication in public media 2. Implementation of Evaluation Implementation Implementation Implementation Performance Based according to according to according to Law No. Budgeting based on PP Kepmendagri Kepmendagri 17/2003 No. 105/2002 3 Restructuring the Preparation Preparation of Merging Biro SKPD as budget regional nancial of Regional Regional Regulation Keuangan and execution and managemetn institution. Regulation on on BKD Dispenda into BKD preparing a nancial regional PFM. unit in each SKPD. Source: University of Gorontalo, 2007. Cash Management Cash management at the provincial government outperformed district governments. Cash management assesses: (i) existing policies, procedures, and controls; (ii) the management and control of cash receipts, payments, and temporary surpluses; and (iii) the e ciency of local revenue billing and collection. Two reasons supporting the strong cash management performance at the provincial level are the initiative to cut the red tape and the prompt implementation of new central government regulations. The provincial government has made good progress in cutting red tape. In 2002, cash management was highly ine cient: 14 di erent stages in the payment process involved the governor's o ce, starting with requests for payment, through payment orders, and nally to payment. In 2006, both the payment process and the approval process were simpli ed have become far more e cient (see Chapter 6 for details). Provincial cash management policy is in line with the latest central government regulation. This policy is included in Gorontalo's current regional regulation on regional PFM. However, the policy needs to be followed up with e orts to improve the capacity of sta , particularly in analyzing the cost of administering local taxes and charges. Similar to the situation at the national level, local tax administration tends to be extremely ine cient, with the cost of administering local taxes and charges consuming over 50 percent of total receipts (World Bank, 2007a). Cash management policy at the district level has yet to be formalized, although some districts are performing well. Hence, several core activities have still to be adopted, including the delegation of authority and implementation of authorization procedures. Formalization of Gorontalo's cash management policy through regional regulations will help to improve cash management performance in all districts. The PFM results show that Kabupaten Gorontalo and Kabupaten Boalemo are performing well, while the Kabupaten Bone Bolango and Kabupaten Pohuwato are lagging behind. Service Delivery and Financial Management in a New Province 77 CHAPTER 5 Public Financial Management Processes at the Provincial and District Levels Gorontalo Public Expenditure Analysis Procurement Survey results show that procurement in Gorontalo, both at provincial and district levels, still faces many challenges. This strategic area assesses: (i) existing policies, procedures, and controls required to promote e cient and competitive procurement; and (ii) an operational system in handling complaints. The overall score for the province as a whole is 65 percent (Table 5. 1). Kabupaten Gorontalo scored highest due to its robust procurement processes. Kabupaten Gorontalo outperformed the provincial government and all other districts because of its open and timely procurement processes. This is despite the fact that Kabupaten Gorontalo su ers the same resource limitations as elsewhere in the province. The district is currently a benchmark for procurement in the province. Procurement across the province remains problematic. Public procurement in Gorontalo is still problematic because the function continues to lack adequate resources, there is no mechanism for handling formal complaints, and few sta have procurement certi cation. Provincial and district governments alike have no speci c regional regulation on procurement procedures and processes, and instead refer to central government procedures and processes.30 Current regional regulations do not explicitly regulate procurement procedures and lack any mechanism to handle formal complaints regarding procurement. Meanwhile, certi ed sta are in short supply both at the provincial and district levels. Accounting and Reporting Accounting and reporting is the strongest PFM feature in Gorontalo. At 80 percent, the average score of this strategic area is higher than any of the other eight areas. The strategic area covers: (i) capacity for accounting and nance; (ii) integrated accounting and management accounting systems; (iii) prompt and accurate recording; and (iv) the reliability of reports. The province and all districts scored above 70 percent, with Kota Gorontalo scoring highest, at 89 percent (Table 5. 1). The provincial government's accounting and reporting standards have bene ted from the recruitment of experienced central government o cials. However, although these o cials have contributed knowledge and started a learning process in implementing PFM, most accounting and reporting is still done manually, a ecting the timeliness of transaction recording. At the provincial level, Task Units (SKPDs) are struggling to adapt to the BKD's accounting system. While most SKPDs are now producing timely quarterly reports, these are still being compiled manually, despite the installation of a computer-based accounting system. Moreover, reports across SKPDs are often inconsistent due to capacity di erences between Task Units. Ultimately, the major task of revising and consolidating these reports falls to the BKD. The districts are experiencing shortages of quali ed sta in public accounting. Similar to the provincial government, most of the districts'Task Units have insu cient numbers of quali ed sta . Moreover, unlike the provincial level, most districts have no quali ed and experienced sta in strategic positions. An extreme example can be found in Kabupaten Pohuwato, where out of 50 members of sta at the district BKD only two have accounting quali cations. Internal Audit Internal monitoring is the second strongest feature of Gorontalo's PFM. The overall score for internal audit is 77 percent. The provincial government and Kabupaten Gorontalo lead the other districts with scores of 89 percent. Internal audit covers: (i) how the internal audit agency is organized and empowered; (ii) standards and procedures; and (iii) whether there is adequate follow-up of administrative ndings. 30 Presidential Decree No. 80/2003 on Procurement. 78 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 5 Public Financial Management Processes at the Provincial and District Levels Although implemented at the provincial level, districts do not yet follow the rigorous internal audit function. In the period 2001-05, there were 958 cases of administrative ndings31 across the province. While more than half of these cases were followed up and resolved at the provincial level, at the district level only 14 percent were followed up (Figure 5. 4). The Bawasda (Badan Pengawasan Daerah, or Regional Monitoring Agency) also encourages public participation in the monitoring of public spending. The public are encouraged to report any misuse of public funds. The main issues reported so far have been price mark-ups on property leases; road project corruption; the misuse of DAK and BOS funds; and rigged tenders. The perfect internal audit performance by Kabupaten Gorontalo is a result of the full commitment of the district government. The district had perfect scores (100 percent) in two sub-areas: Bawasda empowerment and the follow-up of Bawasda ndings by the district government. However, Kabupaten Gorontalo's Bawasda is still limited by the lack of regular training to improve the capacity of auditors and the high proportion of sta with limited accounting backgrounds. Figure 5. 4. Provincial level internal audits reveal far more administrative ndings 900 Not yet processed 600 In process 300 Closed 0 Province Districts Source: World Bank sta estimates based on Gorontalo's provincial Bawasda, 2006. Recommendations Complete and strengthen regulatory frameworks in PFM, both at the provincial and district levels. The provincial government and the district governments should complete preparation of a regulatory framework to regulate the budgeting cycle in a consistent and e ective way, in line with the rules and regulations laid down by the central government. Such frameworks will help to provide a more systematic approach towards PFM reforms. Provide capacity building for middle- and lower-level o cials in order to close the capacity gap with higher- ranking o cials, in particular in PFM. Capacity building should be balanced between individuals and institutions. This can be achieved through simultaneously encouraging o cials to attend external training at various universities providing courses in PFM, and through internal training, where higher-ranking o cials provide hands-on training. At the provincial level, this will help to close the gap through knowledge transfer from more experienced o cials. This should be followed by capacity building at the district level to help raise capacity levels in the districts to a similar level to that of the province. 31 Administrative ndings can take the form of the misuse of budget or incorrect administrative procedures. When a case has been"closed"this means that the case has been followed up in one of two ways: (i) the misused budget has been returned or repaid; or (ii) the administrative procedures have been corrected or revised. Service Delivery and Financial Management in a New Province 79 CHAPTER 5 Public Financial Management Processes at the Provincial and District Levels Gorontalo Public Expenditure Analysis Assign at least one o cial with accounting capacity to each SKPD, at both the provincial and district levels. This is an urgent requirement and several options exist. The most rapid would be to hire external sta with strong accounting backgrounds if such sta are not available internally. A more sustainable approach, but one requiring more time, would be to build the capacity of existing o cials through public accountancy training. A third option would be to utilize the capacity of local universities and develop partnerships with them. 80 Service Delivery and Financial Management in a New Province Chapter 6 Administration and Governance Gorontalo Public Expenditure Analysis CHAPTER 6 Administration and Governance Gorontalo Public Expenditure Analysis Bureaucratic Reform Six years into decentralization, there is still no clear improvement in the quality of service delivery (World Bank, 2007a). One of the main impediments to improving public service delivery is the lack of clarity in the decentralization laws that assign functions and responsibilities across levels of government. This lack of clarity has resulted in cases of overlapping spending across levels of government. As with other regions in Indonesia, such overlapping has also occurred in Gorontalo. Clearer assignments would lead to improved service delivery because the three levels of government would better understand those functions for which they are primarily responsible and for which they will be later held accountable. AlackofhumanresourcesishinderingGorontalointakingontheresponsibilitiescreatedbydecentralization. Gorontalo, as a new province, also faces the daunting challenge of ensuring that sub-national governments have su cient human resources to take on the additional responsibilities required by decentralization. In an e ort to bolster human resources, since 2002 the number of civil servants at the provincial level has more than doubled, while at the district level numbers have increased by more than 25 percent (Figure 6. 1). Figure 6.1. The number of civil servants in Gorontalo is increasing 25 n 20 1.6 1.4 populatio 0.7 15 1,000 1.0 per 10 17.8 14.7 15.8 5 11.8 servants Civil 0 2002 2003 2004 2005 Districts Province Source: World Bank sta calculations based on BKD Provincial Gorontalo. While additional civil servants are still needed, ensuring that those taken on have the capacity to perform their tasks remains a problem. A general pattern in Gorontalo has been that new provincial government civil servants are often recruited from district governments. The districts are then faced with the challenge of recruiting new sta to replace those who have departed for the provincial level. District-level o cials who have joined the provincial government need to be trained in the di erent processes, procedures and expectations. Similarly, new recruits to district governments also need extensive training to ful ll the tasks required. Given the more than 50 percent increase in the number provincial-level civil servants and the 25 percent increase in the number of district- level civil servants, training and capacity is a signi cant roadblock to providing improved public service delivery. In response to the challenges of managing a new province, the provincial government has embarked on one of the most ambitious programs of bureaucratic reform in the country. The provincial government has taken steps to pursue improvements through: (i) restructuring provincial government institutions in order to improve their quality and performance; (ii) recruiting highly educated personnel from universities to ll strategic positions; (iii) contracting expert o cials from central government to support knowledge and experience sharing; (iv) trying to change the mindset of o cials to improve performance by switching from a bureaucratic culture to a corporate culture; and (v) improving personnel welfare through performance incentive mechanisms. These initiatives are part of an ongoing government cultural movement in Gorontalo known as`New Public Management'(NPM).32 32 NPM has created an ongoing discourse among scholars over its usefulness, and its normative and positive contributions (Ewalt, 2001). One view is to see NPM as encouraging enthusiasm for innovations that are passed on to newer tools and strategies (Lynn, 1998). Other views see NPM as a paradigm shift (Mathiasen, 1996) or a mechanism that allows innovations occurring abroad to displace the exisiting bureaucratic model with a new management paradigm (OECD, 1995). Whether NPM represents a new paradigm or not, its attempt to transform the public sector through organizational reforms that focus on results in terms of e ciency, e ectiveness, and quality of service, appears to t well into the larger political theory of governance (Stoker, 1998). 82 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 6 Administration and Governance Gorontalo's NPM movement aims to improve performance using three approaches: (i) implementing performance-based budgeting; (ii) providing high-performance government; and (iii) improving the capacity of regional o cials. i. Performance-based budgeting: the provincial government started implementation in 2003. Each working unit (Satuan Kerja Perangkat Daerah, or SKPD) has the authority to plan and execute its own budget. In 2004, heads of SKPDs started signing performance contracts with the governor as a way of encouraging improved performance levels. ii. High-performance government: customer satisfaction, in this context the people of Gorontalo, is the main objective. Several SKPDs have implemented Standard Operating Procedures (SOP) for ful lling Minimum Service Standards (MSS). In implementing SOP, ve cultural values act as implementation instruments, namely innovation, teamwork, prosperity, trust society and speed. Civil servants are expected to take on this mindset through training provided by the provincial government. However, SOP and MSS implementation is far from optimal due to capacity and adaptive limitations within the SKPDs. iii. Improving the capacity of o cials: there are two approaches to capacity improvement. The rst approach is internal training. Training opportunities for government o cials have increased signi cantly since 2002. In 2005, the number of o cials who bene ted from training was seven times higher than in 2002. The second approach is through external recruitment. Local and regional academics have been recruited to ll strategic positions in order to expedite the process of transition and reform. The approach is also useful in synergizing bureaucrats and academics. TheimplementationofNPMbytheprovincialgovernmenthassofarachievedonlymixedresults. Performance- based budgeting was implemented in 2003 and it is still too early to assess the results. The success of SKPD performance contracts with the governor is unclear because the indicators used for benchmarking are too general. Hence, rede ning benchmark indicators to make them clearer and easier to measure would make the performance contracts more e ective. Nonetheless, despite these mixed results the provincial government has achieved some success in changing mindsets and in the capacity building aspects of NPM. Through its new recruitment policy, the provincial government has increased the proportion of highly educationed sta in the civil service. In 2002-05, the level of education within the civil service in Gorontalo increased signi cantly (Figure 6. 2). Figure 6.2. Increasing capacity pro le of provincial civil servants 2,000 156 1,500 116 servants civil 1,000 68 617 555 of 52 No 305 167 500 125 250 96 58 438 497 527 278 0 2002 2003 2004 2005 < Highschool Diploma Graduate Postgraduate Source: World Bank sta calculations based on BKD Provincial Gorontalo. While accounting capacity has improved in the provincial government, it remains weak at the district level. The provincial government has improved the accounting abilities of its sta through a stronger focus on accounting skills in its recruitment drive and through capacity building activities based on internal knowledge-sharing. However, while this has improved capacity at the provincial level, there is still a shortage of civil servants with basic public accounting skills at the district level. Service Delivery and Financial Management in a New Province 83 CHAPTER 6 Administration and Governance Gorontalo Public Expenditure Analysis Higher-level o cials in the provincial government have a clear understanding of NPM and support the initiative, but the concept is poorly understood by lower-level sta . For NPM to achieve greater impact, it needs to be formalized and re ected in provincial government regulations. At present, NPM is largely a cultural movement within the provincial government and only higher-level o cials have a clear understanding of. Two reasons largely explain the shortcomings in the implementation of NPM: the complexity of the concept and the lack of socialization, especially with lower level sta . Therefore, greater e orts need to be made to ensure that all sta not only in the provincial government but also district governments, understand the need for, and bene ts of, NPM. In view of its ambitious reform agenda, the provincial government is considered a model for regional level bureaucratic reform. The provincial government has received several awards from the central government for its reform program and performance. In April 2007, the BPK awarded the province for excellence in the timely submission of budget realization reports.33 Other sub-national governments have also acknowledged Gorontalo's strong performance by using the provincial government as a model. As a result, visiting missions from other sub- national governments are a common occurrence in Gorontalo. Institutional and Functional Reforms Gorontalo's provincial government has implemented several initiatives to improve the structure and function of its institutions and streamline its administrative processes. In 2004, the Biro Keuangan, the agency responsible for budget executions and expenditure, was merged with the Dinas Pendapatan (Dispenda), the agency responsible for revenues, to form the Badan Keuangan Daerah Provinsi Gorontalo (BKD).34 In 2002, the provincial government also implemented a streamlined process for cash payment by reducing red-tape, cutting the number of stages and thereby improving e ciency. The aim of establishing the BKD was to improve the e ciency and e ectiveness of cash management. By bringing the functions under one agency, nancial statements can be produced consistently and far more quickly, and regional policy on expenditure and revenue can be linked more easily. Figure 6.3. The merging of Biro Keuangan and Dispenda in 2004 Governor Vice Governor Region Secretary (Sekda) Government Assistant Asisten Pemerintahan SEKWAN DINAS BADAN Development Assistant Asisten Pembagnuanan DISPENDA Administration Assistance Asisten Administrasi Badan Keuangan Daerah BIRO UMUM BIRO KEUANGAN Source: Gorontalo Provincial Government. 33 Bisnis Indonesia Online, April 30 2007 (http://web.bisnis.com/keuangan/ekonomi-makro/1id3551.html) 34 The merging of Bagian Keuangan of Bappeda and Dispenda is in accordance with Regional Regulation No. 11/2003 on Organization and Operation of Badan Keuangan Daerah Provinsi Gorontalo. This structural reform was later imposed by the central governments to all regional governments under Government Regulation No. 58/2005. 84 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 6 Administration and Governance The BKD plays a major role in public nancial management. Not only does the BKD manage cash ows, but it is also responsible for budget execution policy and involved in almost all aspects of the budgeting cycle. It prepares budget planning and revisions, and prepares the balance sheet as inputs for planning for future years. It plays a coordinating role in all activities related to regional revenue and expenditure, functions as the local treasury, and assists the o ce of the governor in preparing nancial statements. The BKD's greatest challenge is to ensure that human resources from the two agencies adapt and develop the capacity to take on new responsibilities. Although the BKD is a merger of Biro Keuangan and Dispenda, some additional capacity is needed to adapt to the new tasks and responsibilities of the BKD. Within the BKD, there is a wide di erence in skills and capacity between higher and lower levels of sta . Thus, it is important that capacity is strengthened, especially in the lower echelons of the agency. Furthermore, there is a capacity gap between the BKD and the nancial units within each SKPD (that execute the budget). According to one BKD o cial, the nancial units in most SKPDs do not possess the capacity needed to produce SKPD nancial statements. Consequently, the BKD usually has to rewrite submitted nancial statements to make them consistent with the current reporting format. Therefore, strengthening the accounting skills of the SKPD will also be important in improving the e ciency of the BKD. In the four years since 2002, the provincial government succeeded in simplifying the cash payments process. This was achieved through delegating some of the strategic functions to second-tier o cials and a decision by the governor that many of the cash payment steps did not need to be approved by the governor's o ce. In 2002, cash management was highly ine cient, with 14 desk processes in total (and having to pass through the governor's o ce three times to process requests for payment, payment orders and nal payments). By 2006, the process had been vastly simpli ed, with the administrative steps for cash payment now conducted simultaneously with the steps to obtain payment approval. This has signi cantly reduced the amount of time and e ort needed to make payments (Figure 6. 4). Figure 6.4. Cutting the red tape: from 14 desk stages down to just two G G G W W W S 2002-2005 S S A A K K K D W D = SKPD S K = BKD A = Regional Assistant A 2006 K S = Regional Secretary K W = Vice Governor II G = Governor D I Q K Q = Finance at SKPD Re quest for Payment Payment Order Flow Disbursement Flow Flow Source: Provincial Bapppeda Gorontalo. Service Delivery and Financial Management in a New Province 85 CHAPTER 6 Administration and Governance Gorontalo Public Expenditure Analysis Salary Reform The regional performance incentive scheme (Tunjangan Kinerja Daerah, or TKD) was introduced in 2002 to improve civil servant performance. The provincial government realized that nancial incentives would be e ective in creating a high-performance working environment. The idea was rst introduced in 2002 as a means of reallocating honoraria (from third-party funding) for projects and activities. Previously, such honoraria only went to personnel involved directly in the projects and had no link to, or impact on, overall performance. Now, theTKD scheme distributes these payments among all civil servants based on certain performance criteria. TKDisexpectedtoresolveissuesofworkdistributionandworkperformancethroughtheo eringofincentives. All civil servants are eligible to receive the incentives if they ful ll the performance requirements. Moreover, TKD also provides a solution to disincentives created by honoraria that often caused civil servants to neglect their main tasks. However, there is no consensus on how civil servant performance should be measured and rewarded. Views vary among o cials, civil servants and civil society on how successful the TKD scheme has been to date. There are four main issues: i. A stronger legal framework for implementing TKD is urgently needed. The sensitive nature of TKD and its potential to improve the performance of civil servants require a strong regulation to support it. In this case a regional regulation is required to carry the necessary legal weight. ii. The indicators used for evaluating performance still tend to be too qualitative and include vague criteria such as discipline and understanding of job description, work innovation, accuracy and teamwork. After the implementation of TKD, sta disciplinary records improved signi cantly from 63 percent to 93 percent. However, discipline is currently measured by performance indicators that are largely based on attendance. On understanding the job description, the evaluation is based on sta level regardless of job and workload analysis. The provincial government has acknowledged the shortcomings in the set of performance indicators used inTKD. A better set of performance indicators is needed, especially if the scheme is to receive the full support of the people of Gorontalo. iii. TKD allocation is relatively large compared with other expenditures (Figure 6.5). In 2005, TKD accounted for 40 percent of personnel spending and 10 percent of overall spending. Moreover, by comparing the size ofTKD with sectoral spending at the provincial level,TKD outspent agriculture, health, and education (Figure 6.6). iv. Districts have yet to adopt the performance incentive mechanism. Figure 6.5. Provincial spending pattern, 2005 TKD Others 10% 12% Personnel 15% Capital 28% Goods and Services 34% Source: World Bank sta calculations based on SIKD MoF. 86 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis CHAPTER 6 Administration and Governance Figure 6.6. TKD is the third largest spending item at the provincial level, 2005 Government administration Public works TKD Agriculture Education and cultures Miscelaneous Fisheries and Marine Transportation Social Health Environment Forestry and plantation Industry and trade Labor Mining and energy - 20 40 60 80 100 120 140 Source: World Bank sta calculations based on SIKD MoF and BKD Province Gorontalo Implementation of TKD in Gorontalo is more advanced than in other regions. Gorontalo started using performance indicators for sta evaluation ahead of other regions. Some regions that have since started to adopt TKD do not have an established performance measurement concept or any special orientation towards increasing productivity and performance. For example,TKD is considered an equalization and welfare improvement mechanism, but is only measured by attendance records. Gorontalo, on the other hand, has chosen to use performance-based indicators. However, subjectivity is still apparent in evaluation due to the complexity of the tasks and hence the di culties of standardizing the measurement mechanism (KPK, 2006). Although implementation in of TKD in Gorontalo has had no budgetary impact (only a redistribution of funds), the funds redistributed through the TKD mechanism are nonetheless higher than other regions using the same mechanism (Table 6. 1). Table 6.1. Comparison of the TKD scheme across various regions Description Gorontalo Solok Pekanbaru Jembrana Background Regional governments tend to Moral hazard Action plan to support Jembrana is a small be ine cient and ine ective. caused by good governance and poor districts with honorarium from through capacity limited natural and projects and building, performance human resources. committees based management, and improvement in service delivery Objective Utilization of limited allocation Redistribution of Improving capacity of civil Improve sectoral related to reward and healthy honorarium servants. e ciency. competition of civil servants in terms of performance and value Indicators Disciplinary 30% and Disciplinary Disciplinary Only attendance record performance 70% (2006) Fiscal impact Redistribution of Rp 18.7 billion Redistribution Reduced spending Reduced spending (2003), Rp 20.3 billion (2004), of Rp 14.7 billion Rp 10.7 billion (2005) Rp 6.4 billion (2005) and Rp 25 billion (2005) (2004) Outcome Increased welfare and Feeling rewarded Increased welfare, Increase productivity disciplinary. and increased disciplinary, and budget and budget e ciency disciplinary. e ciency Source: KPK, 2005. Service Delivery and Financial Management in a New Province 87 CHAPTER 6 Administration and Governance Gorontalo Public Expenditure Analysis The introduction of TKD is a major step towards more e ective and e cient regional government. The initiative has shown the provincial government's commitment in pursuing reform. With implementation at an early stage, there remains considerable scope for improvement, especially in creating relevant performance indicators and strengthening the legal framework. Creating a transparent performance measurement and reward system is very important. Not only will this provide clearer incentives for sta but increased transparency will also help to win support for the TKD mechanism from wider stakeholders. Recommendations Socialize the concept of New Public Management more intensively and practice simple applications of the concept. There is evidence that NPM is only understood by high-ranking o cials. The province needs to socialize the concept to lower-ranking o cials and also reach out to district-level government o cials. The province should therefore consider developing innovative ways of disseminating the NPM concepts throughout the province. Develop a dissemination mechanism to provide clear and timely information on innovations that have taken place in the province, both to o cials at the provincial and district levels and to wider stakeholders. Such information should cover all aspects of the innovations, including the background, objectives, impacts and mechanisms used. This will serve as a consultative mechanism to gather inputs on the innovations and also win wider stakeholder buy-in. After this dissemination process, the innovations should be supported with relevant regional regulations to strengthen their legal status. Take a more proactive approach in rolling out the reform agenda to the districts. One of the problems of bureaucratic reform in Gorontalo is that it is only occurring at the top level within the provincial government. The impacts of such reform will only be maximized if the districts are included. Currently, the provincial government is only socializing the reforms through leading the process by example. The province should take a more proactive approach, for instance by conducting hands-on training for district government personnel. Improve the mechanism and regulatory support for TKD. The current mechanism still has several important shortcomings, especially in the set of indicators used. A better performance review process should be instigated and the set of indicators improved, with more comprehensive performance indicators being developed. Finally, in order to provide full legal status, a strong regional regulation is needed to support the TKD mechanism. However, such a regulation should also provide the exibility to allow for the further re nement of the TKD mechanism going forward. 88 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis REFERENCES References Department of Agriculture, University of Arkansas"http://www.aragriculture.org/specialty/" Arturo Warman. Corn and Capitalism: How a Botanical Bastard Grew to Global Dominance. (Translated by Nancy L. Westrate). Chapel Hill: University of North Carolina Press, 2003 Alhadar, Sofyan and M. Isnaeni (2006)."Fadel Muhammad: Dari Pengusaha ke Birokrat". Media Pustaka, Jakarta. Badan Pusat Statistik (BPS) Provinsi Gorontalo (2006)."Gorontalo Dalam Angka 2006". BPS, Gorontalo _________ (2005)."Gorontalo Dalam Angka 2005". BPS, Gorontalo. Badan Pusat Statistik, Bappenas, UNDP (2004). Indonesia Human Development Report."The Economics of Democracy: Financing Human Development in Indonesia."Jakarta. Indonesia. Fitrani, Fitria, Bert Hofman and Kai Kaiser (2005). "Unity in Diversity?: The Creation of New Local Governments in a Decentralizing Indonesia". Bulletin of Indonesian Economic Studies, Vol.41, No.1, 2005: 57-79, Routledge, Australian National University,Australia. Hofman, B., Kadjatmiko, Kaiser, K., Suharnoko, B. (2006).,,Evaluating Fiscal Equalization in Indonesia" by Bert Hofman, Kadjatmiko, Kai Kaiser, and Bambang Suharnoko Sjahrir. WB Policy Working Paper WPS 3911. Bank Dunia. Komisi Pemberantasan Korupsi (2006)."Tambahan Penghasilan Bagi Pegawai Negeri Sipil Daerah". Jakarta. Lewis, Blane (2003). "Property Tax in Indonesia: Measuring and Explaining Administrative (Under-) Performance." Research Triangle Institute. North Carolina, USA. Lewis, Blane dan Jasmin Chakeri (2004c)."Development Spending in the Regions". Bank Dunia Jakarta (dokumen tidak dipublikasikan). Marsuki (2006a). ,,Efektivitas Peran Perbankan Memberdayakan Sektor Ekonomi Unggulan: Kasus Sulawesi Selatan". Mitra Wacana Media, Jakarta. _________ (2006b)."Analisis Perekonomian Indonesia Kontemporer". Mitra Wacana Media, Jakarta. _________ (2006c). "Analisis Perekonomian Sulawesi Selatan dan Kawasan Timur Indonesia". Mitra Wacana Media, Jakarta. Pemerintah Daerah Papua dan Bank Dunia (2005). "Papua Public Expenditure Analysis: Regional Finance and Service Delivery in Indonesia's Most Remote Region". Indonesia Pemerintah Indonesia (2000). Keputusan Menteri Keuangan N0. 556 tahun 2000 tentang Tatacara Penyaluran Dana Alokasi Umum dan Alokasi Khusus. _________ (2002). Keputusan Menteri Dalam Negeri nomor 29 tahun 2002 tentang Pedoman Pengurusan, Pertanggungjawaban dan Pengawasan Keuangan dan Belanja Daerah, Pelaksanaan Tata Usaha Keuangan Daerah dan Penyusunan Perhitungan Anggaran Pendapatan dan Belanja Daerah. _________(2000).PeraturanPemerintahRepublikIndonesianomor129tahun2000tentangPersyaratanPembentukan dan Kriteria Pemekaran, Penghapusan, dan Penggabungan Daerah. _________ (2001). Peraturan Pemerintah Republik Indonesia No. 39 tahun 2001 tentang Penyelenggaraan Dekonsentrasi. _________ (2001). Peraturan Pemerintah Republik Indonesia No. 65 tahun 2001 tentang Pajak Daerah. _________ (2001). Peraturan Pemerintah Republik Indonesia No. 66 tahun 2001 tentang Retribusi Daerah _________ (2005a). Peraturan Pemerintah Republik Indonesia No. 55 tahun 2005 tentang Dana Perimbangan. _________ (2005b). Peraturan Pemerintah Republik Indonesia No. 56 tahun 2005 tentang Sistem Informasi Keuangan Daerah. _________ (2005c). Peraturan Pemerintah Republik Indonesia No. 58 tahun 2005 tentang Pengelolaan Keuangan Daerah. _________ (1997). Undang-Undang Republik Indonesia nomor 18 tahun 1997 tentang Pajak Daerah dan Retribusi Daerah. _________ (1999a). Undang-Undang Republik Indonesia nomor 22 tahun 1999 tentang Pemerintahan Daerah. _________ (1999b). Undang-Undang Republik Indonesia nomor 25 tahun 1999 tentang Perimbangan Keuangan Antara Pusat dan Daerah. _________ (2000). Undang-Undang Republik Indonesia No. 34 tahun 2000 tentang Pajak dan Retribusi Daerah. _________ (2001). Undang-undang Republik Indonesia nomor 19 tahun 2001 tentang Penghapusan, dan Penggabungan Daerah. _________ (2004). Undang-Undang No. 32 tahun 2004 tentang Pemerintahan Daerah. _________ (2004). Undang-Undang No. 33 tahun 2004 tentang Perimbangan Keuangan antara Pemerintah Pusat dan Pemerintahan Daerah. Service Delivery and Financial Management in a New Province 89 REFERENCES Gorontalo Public Expenditure Analysis Sidik, M. (2002)."Perimbangan Keuangan Pusat dan Daerah Sebagai Pelaksanaan Desentralisasi Fiskal". Seminar Setahun Implementasi Kebijaksanaan Otonomi Daerah di Indonesia, Yogyakarta 2002. Usman, Syaikhu, Akhmadi, and Daniel Suryadarma (2004)."When Teachers are Absent: Where do They Go and What is the Impact on Students". SMERU, Jakarta. World Bank (2002)."Decentralizing Indonesia".World Bank Regional Public Expenditure Review Overview Report.World Bank East Asia and Paci c Region, Poverty Reduction and Economic Management Unit. World Bank and Ministry of Home A airs (2005). Indonesia: Local Government Financial Management. A Measurement Framework. Jakarta, Indonesia. World Bank (2005a). "Indonesia: Local Government Financial Management. A Measurement Framework". Jakarta, Indonesia. _________ (2005b). "Papua Public Expenditure Analysis: Regional Finance and Service Delivery in Indonesia's Most Remote Region". Indonesia _________ (2006a). "Aceh Public Expenditure Analysis: Spending for Reconstruction and Poverty Reduction". Indonesia _________ (2006b)."Making the New Indonesia Work for the Poor". Indonesia _________ (2007a). Indonesia Public Expenditure Review."Spending on Development: Making the Most of Indonesia's New Opportunities". Jakarta, Indonesia. _________ (2007b). Pengelolaan Keuangan Publik di Aceh. "Mengukur Kinerja Pemerintah Daerah di Aceh". Jakarta, Indonesia _________ (2007c). "Managing Resources to Build Back and Create aBetter Future for Nias". Jakarta Indonesia. _________ (2007d). "Gorontalo Public Financial Management Survey". World Bank Jakarta Technical Report. 90 Service Delivery and Financial Management in a New Province Annexes Gorontalo Public Expenditure Analysis ANNEXES Gorontalo Public Expenditure Analysis Annex A. What is Gorontalo Public Expenditure Analysis? To support programs that are based on local initiatives and demands, Support O ce for Eastern Indonesia (SOfEI) held the 2nd Eastern Indonesia (EI) Forum in Makassar. The EI Forum Working Group has agreed to conduct Public Expenditure Analysis and Capacity Harmonizaiton (PEACH) in various regions in Eastern Indonesia. The Papua PEACH experience has shown that participatory public expenditure analysis is a good starting point to improve the quality of public nancial management in order to implement the newly acquired functions and responsibilities of regional governments in decentralizing Indonesia. One regional government that has expressed an interest in conducting a public expenditure analysis is Gorontalo Provincial Government. As a response, SOfEI/WB proposed Gorontalo PEACH, a thorough analysis of public expenditure management, linked to a program of activities to strengthen the capacity of regional governments. Gorontalo PEACH is expected to improved allocation of budget resources leading to an enhanced local provision of public goods that is tailored to local preferences and considerations. This will be accomplished through greater involvement of local decision makers as well as other stakeholders in identi cation of public spending priorities and the management of scal a airs. Based on the characteristic and needs of Gorontalo province, Gorontalo PEACH has been designed to consist of three independent components: (i) Gorontalo Public Expenditure Analysis (PEA) ­ an analysis on public nance management by quali ed and experienced local partners, with WB assistance and oversight by a committee of stakeholders; (ii) Gorontalo Millennium Development Goals (MDG) ­ an analysis to set a provincial level strategy to achieve MDG. The results will be used to better formulate short and medium term target and its implementation. (iii) Gorontalo Regional Economic Development Analysis (RED) ­ an analysis on the province's performance with regards to the `three pillars of development' set by the provincial government and how it re ects the management of public funds. A team of consultants from leading academic institutions in Gorontalo, University of Gorontalo, is being mobilized to take lead in preparing the Public Expenditure Analysis (PEA) component. The main objectives of the PEA component are to: (i) Gain a better understanding of public nancial management in a newly formed province, in particular with regards to its participatory planning and budgeting process and basic service delivery. (ii) Gain better understanding of the currently underway civil service reform, in particular with regards to the implementation of Tunjangan Kesejahteraan Daerah; (iii) Develop strategies to improve Gorontalo's nancial management for better public services and public investments to stimulate higher economic growth. (iv) Establish a better system to analyze and monitor local budgets. o Establishing a network of counterparts from local Gorontalo universities and local government agencies that will lead the Gorontalo PEACH and thus will build up capacity to conduct public expenditure analysis in the future; o Providing technical assistance/capacity enhancement to this network to carry out similar analysis in the future. 92 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis ANNEXES t t t t t ic ic ic ic ic distr distr distr distr distr nment, nment, nment, nment, nment, er er er er er nment nmentre er instutions gov gov gov gov gov gov gov ant nmentsre nmentsre nmentsre nmentsre nmentsre Relev ovincialrP gov ovincialrP gov ovincialrP gov ovincialrP gov ovincialrP gov entralC ovincialrP . y . in is the enc ce e e oidva can e , tiv ar .y ot ed vices these and nments tivities es basic ec budget.s' central . it, tiv ser er that but, The. ot ac easance ealiz the rat should of e than orst in that transpar their own-sour" e now ovide applied eary malf unr basic govt sec e dingly suppor e of ic budgets pr users of eclassifyr edt ov mor els ot -planneder ot and, administration spending ed ts y es ensur ic own ealizationr other" e accountabilit ously iskr and distr lev is ar vice eporr accor t/cit impr e be in ollowingf the 33/2004,. ot esponsibilitiesr duplication its shar especially . and distr ic ot ges ser and igorr be nment y y e No er and vices an e ar the -national the distr iv end higher and w decentraliz ovince ser adapt tr minimiz nments char enc o should higher gov sub in initiativ str er int educer spending) La er tices er ot shouldt pr e ovincial tasks and oidva on or all clear ough and user established basic viewer y . gov out the ot oviders nished d no thr es transpar prac ovyr nex prs' bett ell on ot tion and pr ersvoyr and,y ding allocat administration, w der y is the un e ow especially with nment ovince also should rat e es ontalo cr er pr or tions e vice ease car (car" o e ar spending, ar ot in tunit ther ov collec -national axT. an ccorA and int gov the and, ser ojec incr Gor nment esponsibilitr ge sub w and ed closely nments pr impr la ot spending een accounting eary that er e ontalo) een accountabilit its oppor of er er ot of luncur spending w char w der cation. gov nments needed that scal Gor allow mor an on e -national eas bet er if gov Although bett bet or e and tivities economies 2007a)., balances be ional ease ar' y . help user y in y th ac had belanja" classi administration ts and scal one . Bank Nor not egrt sub incr govt dinat ic ic t/cit and ensur enc and on has ic ould eloped ld distr enuesver w ot ting eary orf tax or coor spending distr esponsibilitiesr decentralization . omfr nment spending distr of ed eary er scal er dev W( should should cept suppor ot spent nment ce the accounting accountabilit ov of- transpar eporr economic e ov budget nI t their esponsibilitiesr with cient and estimation of gov . e (ex ot er not ocesses main in e e tion of pr eness enuesver of of cent d iat impr end- el iedr the nex on ts needs nment and gov ic e tiv the ed tice of rams per ar duplicating ce be lev used er opr een car closely the og 5 spending tion ovincial own-sour ous ec of w pr distr be gov tasks e mor standar the prac is minimiz tion ed nment prs' of e appr in funds than ed of mor on oidva methods igorr One stipulat engthening ot ovincial bet the that sec ed er pr ot ommenda e the . as str the should raise the spending e eat ed of own-sour" e y e e ities ot -pooro less aim should cr gov nment ovincial the Rec ov ease ov advise yeK ontalo mor will pr er pr division dinat inimiz econcentrat Gor estimations impr and ncrI enuesver vices ms ead ser ert other" mprI nancing Capacit dispar This Eliminat funds spending document M and usually should newly D inst central gov The the coor Once then spending . ed mplementaI ce ges ding ealiz-r and, the evious e by sour char goods in ar ow basic cent, pr cr of as orf earsy . ed is on lapping per under held user ded the er and 20 scal in orst esponsibilitiesr ov ent eceivablesr ement of assets enuesver and nancing ecorr ts spending ic of ded sec . and and e than tax est not ed ar e of er ocur ce end net e spendings' distr genda tion. pr ar ecorr deconcentrat tasks mor A.B sale(" int, the its the egoing een with spending enuesver by orf w was omfr . nment ot ot spending e collec e ed omfr own-sour . er bet e but, administration decentraliz ed occur ge ce tax other" nments and y pluses x spending on gov ealiz-r er still orf on vices) er eary lar -national elativr compar allocation Issues er gov nmetn ely enue ser epanc ov cits/sur . er sub Anne yeK low wn-sour ov cept income yr entr ge vices tivities Rev O or ex Relying local eceivablesr and of Discr de Expenditur Car cur eary Gov elativr Lar spending out ovincialrP e ser ar deconcentrat ac Service Delivery and Financial Management in a New Province 93 ANNEXES Gorontalo Public Expenditure Analysis , t t t t t ic ic ic ic otaK ic distr distr distr distr distr Boalemo and in en nment, nment, nment, nment, er . er . er er nment,re ontalo nment, nment, or er er gov gov gov gov gov abupatK G gov en nmentsre nmentsre nmentre nmentre govt ic ticular ontalo nment.re ovincialrP gov ovincialrP gov ovincialrP gov ovincialrP gov ovincialrP distr par abupatK Gor ovincialrP gov , ot ,e orf tur y , vice ot en ot ds y senior oving nI , instance ser on mix tak ndings . in health imar a wa educedr expand mainly and against built pr erage ot the orf, . ot need as impr, warot allocations 2006. ot e e cov es ed infrastruc eliesr under The supply needed n. ort 2005, nments ed i that tiv e junior economic- oupsrg end in tur tur money tr in ovince tant er of full oving rams such emphasis be ar sec in eturr pr erv elatr og access facilities in that ot e The gov e Now education be . mprI pr objec the es of tur the ed esc socios' income .e . gain rat es ersedver ersedver impor ot estingv tur infrastruc is infrastruc in enance get education. er it oaching oving needs educational rat tur and ontalo theset the Education tar, easing ontalo low ts was an esourr ic woL need omfr eachingt appr impr cannot . population infrastruc methods education a incr n ollment . n Gor orf astruc While that Gor,e maint infrastruc the of analysis the distr e y and bene spending .e poor ith orf higher enr e infr decline dat ious poor ocationalv possible desig ontalo eturr orf also ther orf ot ivg vices tur oving or of ions include on Both G ensur var also W. this oT. qualit eachingt egr thefI the if, case additional ithin ser . e little but ot fur, easing W ot and the . and poor . impr maintained -national rat the ould ong iser otaK which in spent .d astruc oot should and be een w,y str supply ncrI these ot tant the erve population. orst e sub ot infr The. far and other a ot and war w tion. closer on of whether although estmentsv e ovince is and ovince of of How tion. ed sanitation, pr the pr -sec e orf e impor in tur bet e with eachingt .e crucial or basis need of 2005, e assets educa ought a e ontalo er up education of secondar br the needs ther, the sub be access shar in y educa in a continued tur going mor the allocat y of demand as will Gor enanc capital be iculturr y ott een xpenditure as es ev of needs ed w er en of wat,y infrastruc understand en e ching imar allocation senior public ions ag case used ev lif new ha, pr qualit icit cat ot vice income els the ot bet wat otalt maint is tr the of on be ondar bene e the spending infrastruc orf e in the and ser egr lev educational esv sis of of the e adjust, the it, ar y essc est c ce sec mix saf spending e elec ities the entr nments then ser in be e expenditur orf tur tion abupatK, than education es ac orf er rat ior raising s' analy and tur poor sour ocusedf cur will ontalo pr adjusting that speci its best especially possible opor Gor maximiz govt oving secondar es could ther is if, tions higher and by the poor as the pr nominal that infrastruc Boalemo in ot ic e in e ollment spending is igation,rir, fur training schools and e impr ollment tur mix the equirr ess e enr y the sanitation This. infrastruc of allocations, the otalt en distr oadsr on enr spending junior,y e alloca tur evo analysis this ovided addr iculturr understand ot ds ovince tak evo earsy shar enance er e needs education. pr imar ot ag pr ease easing such abupatK ease just ocusF school capital infrastruc spending pr mprI then be as on ocationalv maintained bett of the Under incr secondar mprI access standar Maintain incr although their futur in local ncrI infrastruc is maint especially not and , is senior ould ee in es w thr , . the and case er is income y a Boalemo low ions ontalo of ontalo data the is wat or e or er population. en ar egr e e G een G e w saf in poor expenditur Such ther tur een analysis . bet ouprg spending otaK w orf secondar els and e abupatK bet lev ces tur in and allow yit -national whether spending infrastruc education income not junior,y . especially, sub esourr ontalo do imar mine els e sanitation low or dispar of infrastruc public pr education er ot lev tur low y orf G of especially, enance schools e en tion y and ot data det y ely the entr ibution ot oss eallocatingr astruc access shar easing maint Educa imarrP qualit ccessA elativr oupsrg urC distr acr secondar help orf education nfrI woL especially The decr abupatK woL 94 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis ANNEXES t t t t ic ic ic ic distr distr distr distr nment, nment, nment, nment, nment. er er er er er gov gov gov gov govt ic nment.re nment.re nmentre nmentre Distr ovincialrP gov ovincialrP gov ovincialrP gov ovincialrP gov , that ot e , e be issues face e and oving leading health es ts e been a ot ic ontalo ensur y tur nments especially, ot impr ev ting pla er . Gor expenditur allocation ys ot needs health ha ea Distr c e in tr . expenditur will wa that orst or govt ic tional infrastruc viderso ersk ovince xpenditure . crucial pr or eas who doc speci of iculturr cations pr w is ar ts of distr vices the essential func, ysical e e eas vic Identifying ar yek ic y get enting agt tion ic ph ser . distr tart ev and oss classi orf erve pr on ser the acr distr alloca How es e eas rural healthcar of the ar vailabilita good tha in in and, ovincial of vailablea e y one ams comes ities economic high. rural . is ticular The. ovide pr ogr estar prs' out onomic ot ces ely healthcar par and ot expenditur pr y ec Dispar iat ot in ontalo ding vailabilita healthcar ovince esourr ban pr Health. orf the .e able Gor health opr omfr essc ur spending e y the e be accor the appr ac ovide nment, morbidit orf ov erageva een pr health er . ot vingo waa ces is e e w and tant impr equal bet ersk on gov enanc spending educer vices ot impr xpenditure mov ev high or oughout esourr w ser tion facilities yb thr impor e that ot y elopment. ha ely e maint of health rams be -national orf y of og capitalt expenditur need dev elativr epancies vices spending health utiliza will pr cienc cesses a ce ser sub egionsr tion tion e the discr healthcar e tion, it,e eallocatr ex e ot al e e tional public ge vailabilita distric capital, or ef of esourr rurt lar ivat -na hence, alloca the alloca need espit pr ed implement tion D healthcar erageva highlights sub tha . oviding the by the spending the immuniza Ther. expenditur . human e orst emainr and ot pr and On as ts n . ds e ease in ent ease ease ea ease alloca er spending Ensur doc ther public access ncrI decentraliz oler ncrI balanced ncrI such thr desig ncrI and highlight di emsit of warot and .e rural both y er 5 and 6 and of orf capital wat capital vices ed ndonesiaI ban cent below 2005 ser ing in ur health in per erageva (only vailabilita expenditur health e e health immunization elat-r ink est dr on een 71 spent rams . . entiv low and w ts el og while, come ic -national pr clean the iculturr bet than spending national levt evrP out -national e vices -used as agt distr ic spending the sub ic spending of health sub ser ed mor 2005). e and health distr among in under health distr epancies orf ot such,e e all below e otalt e e ot ar e in ar ed health and tur of of midwif discr ovince still ities pr is allocation as access ge ional cent cent erage eas econcentrat ovince Health Lar ar D account egr The per this pr woL riculturg expenditur per expenditur such cov and infrastruc sanitation, A Dispar Service Delivery and Financial Management in a New Province 95 ANNEXES Gorontalo Public Expenditure Analysis t t t ic ic ic ovincial distr distr distr pr nment, nmentre nment, nment, nment, er er er er gov gov gov gov govt ic nmentre nmentre nmentre nmentre Distr gov ovincialrP ovincialrP gov ovincialrP gov ovincialrP gov t t ic els ort ic t op and be lev ops same . e Distr ot sec distr, cr ot cr has and e Such in help the ot .e e the eased orft rural bene the and should be ned mor ot vincialo rapid owing At the training ncrI value- and . el pr build e ovince . vailablea these continuing ould iculturr . ownership; simultaneously pr vincialo ent nment. complet er ms desig courses on omfr levt the most ot w ag ort suppor pr or close building er been ic not be boosting higher and added be gov y The e agricultur communities justify consist efr ot ough ar on in sec iculturr ev ontalo should a hands- distr . in ag ha whether ot M but . transf in der thr oviding ould option oler the ovincial other orf entalr value theta d Gor m PF et, bothta, exist. them. ing central or Capacit ed pr the they w, e iculturalr pr o in .y or ying tiv int efr tr both nments cleyc ds ovide if in . at ovince thirI the oblems M pr pr time with spending ag facing the SKPD . e higher in pr e spending PF achiev ersities options of oac ot ot both er orf er M, measur by warot cials cials nowledgek the el e pr priorit PF in be o straightjack els univ of each oundsrg mor e levt iculturr echnologyt et,k ces govt o in y o building eral and ic oach lev y training shar oblems ot essential down el can ough ing y tnerships mor closest pr ag mar that budgeting or ious ing that y sev back a addition y vincialo ork thr Resour tices be distr laid appr local ticular ot par their the in the This var and mation land pr equirr distric e ot er-lev par . -rank capacit el Being . ot (i) .e the at gap or a prac will egulatr w amew by lev capacit elop ease ersifying inf the a lo fr ematic in, one and assume es on: div ersk the y and ed ement accounting accountanc dev e incr rat and ome iculturr new or egulatr higher e but ot and, yt n, and ocusf ag of w ort training tivities/industr . ot egulationsr syst cials e solutions and- institutions close similar and vinco er solutions bec cor o a equirr ong ac of y nment k become e nal ollowf ountingc public str of er or and ot mor be ot oach, pr nd wher, ac erageva pov etingk ightsr orst yt estr egular a not and ert middle ing ts ot should ex gent ersities should tance orf -sec gov help ic rules ur with appr ough een mar based evaluation the orf ank with w oper e sub framew innovativ thr univ encouraged educer and ovide end training will an pr y tion the should distr sta impor and pr should orf cial is bet be ot k att placed cultivation ies or w individuals nal the cials e ot national ovincial ot or nal local spending eloping iculturr this, alua the ing these pr with ot er the el This. in o oving sher engthen allo higher-r int This. ert o of the best sustainable o dev ag ev of or e , d orft building lev els ex e y str The egulatr een line help ot y w cials cials one els e balanc need helping ar int . a framew with with nment (ii); impr onit lev and of will bet o o tly er (iii) A existing the ec ock warot ough y hir mor eness M and els in,y k M levt capacit suppor or PF capacit gap ing thr ot evo line e wa ovincial . of nments in nments govt cation e enough est y and oring wara iculturalr levt e y leastta pr be 2005. and capacit er e indir er ic liv ag tiv the, ienced the distric e ersi mov eparation ec framew M, the er mprI nancial gov mor and gov distr div and SMEs; (iv) Monit raised since poor ompletC exible distric pr e a time videorP nally balanced ould capacit be encourag PF At exper raise Assign and w int capacit utiliz with one e d nment. of warot er el least .y iculturr equipped lev at e gov ag .k ev tiv of not or ent ha capacit er oac pr ovincial ent di of pr as optimal e framew (SKPD) een the Management ar y evaluation w not not or es unit accounting iss't bet nment than and still er ingk with ic e is ing inancialF egulatr gap initiativ gov or y w or distr m ed all iculturr or ional onit The ag M spending ublicP Ref equirr Capacit egr Not personnel 96 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis ANNEXES t ic y distr societ nment, er civil, nmentre nmentre nmentre gov gov gov gov nments er ovincialrP gov ovincialrP ovincialrP ovincialrP , ot erve . has ing el ors der oach, should the One lev the still or How of simple . if ms theta win ional ors in, e ts opt appr ed or e include also egr indicat tic high-rank efr tiv cials mechanisms of ac disseminating the . and indicat inallyF nement by pr of distric at the oac o should set of . and mechanism er ys pr mechanism. ood the ingr maximiz ot elevantr e ts the set and wa be entr eloped TKD ther e ot personnel with the ely mor cur and fur occur only a socializing both,e mation or impac, innovations edt dev and thet underst e inf es the the The. itself be ensiv only will tak agenda only nment plac tiv orf int only innovativ is m er on e is it is or en The. suppor TKD suppor M orm efr objec, be pursued should orft ot allow mor NP efr should that govt tak ic inputs be ors ot eloping is nment ev mechanism y that dev the such er eholders of ovince distr hat oundrg should the needed out ontalo ts gov pr orf gather stak suppor in should indicat is exibilit . tha back ot y Gor The. . ort the ocess the Management evidence consider mance is e ovince ollingr in impac ovincial m training wider pr status orf e or pr tionsav innovations pr in ef or The ot on egular especially, egulationr ovide efr viewer per e pr .d ublicP Ther the the, example inno mechanism the, legal . ther and oach ong by on including, e and nment. hands- els str also war New ept entlyr ocess their comingst a, orf appr er of should e eaucratic ocess ting tion levt pr mance ehensiv oncc oughout urC gov . pr shor orf ept thr tiv bur this status should consultativ going the orma innovations a engthen per mechanism tant omprC the of ert oncc ovince oac conduc distric of inf as Af str er . pr pr ovincial the legal e included by pr and ev ot the ed the concepts e of evo impor bett clear ov full leading A egulationr e tions The. oblems ar ts ser M mor the . a mechanism a pr ts buy-in. eral impr cials NP e ic ovide the ough instance mprI sev used be pr such TKD ocializS applica o the akT of within distr thr orf videorP vincialo will aspec pr all This wider egulationsr not vants and and Only. ser down- civil opt optimal optimal is not egulation.r ety nowledgek among ev orm concept. M ha ocess efr still not NP is ong is pr the str cils of m of and a o or e by efr optimal ing up ety ernancvo mechanism ed socialization socialization M not e G TKD back NP high-rank understanding Beuracratic The ar Service Delivery and Financial Management in a New Province 97 ANNEXES Gorontalo Public Expenditure Analysis Annex C. Methodological Note A. Provincial and District Government Budget (APBD) The provincial and district government budget (Anggaran Pendapatan dan Belanja Daerah, or APBD) is the yearly budget allocated and/or spent by provincial and district governments. The budget consists of two categories: planned (proposal for parliament approval) and realization (actual spending or accountability report of the head of the region). Data span from 2002 to 2006, obtained from provincial and districts government in Gorontalo. A projection is made for some components of Gorontalo 2006 budget numbers. Ministry of Finance provided data for nationwide comparison. B. PFM Framework: Strategic Areas, Outcomes, and Indicators The World Bank and Government of Indonesia's Ministry of Home A airs to assess district governments' nancial management capacity developed the PFM framework.The framework is divided in nine strategic areas key to e ective management of public nances by district governments: (1) Regulatory Framework, (2) Planning and Budgeting, (3) Cash Management, (4) Procurement, (5) Accounting and Reporting, (6) Internal Audit, (7) Public Debt and Investment, (8) Asset Management, and (9) External Audit and Oversight. Each strategic area is divided into between 1 and 5 outcomes, and lists of indicators are provided for each outcome. The outcomes represent a desired achievement within each strategic area, and indicators are used to assess how district governments are performing in that area. It should be noted that international best practices have not been used to form the basis of the outcomes because, in practice, the gulf between them and the present reality is too great to generate viable results. Respondents are required to answer"yes"or"no"to each statement represented by each indicator. A rmative responses are added for each outcome, and a score is calculated according to the percentage of "yes'" responses. Some strategic areas have more indicators than others; hence, they have more weight in the overall results. For example, planning and budgeting covers 49 indicators, yet debt and public investment covers only 8. Other more heavily weighted strategic indicators include procurement (41 indicators) and cash management (31 indicators). Survey sites The PFM framework was implemented in Gorontalo, and covers the provincial government and 5 districts. The newest district, Gorontalo Utara was not covered in the survey because it was formed less than one year when the survey went underway. The university of Gorontalo and University of Hasanuddin provided research for the survey. The PFM Survey in Gorontalo was funded by Decentralization Support Facility focal area 2. As of end 2007, the PFM Survey has been implemented in around 60 districts throughout Indonesia. Methodology Results were obtained through interviews and FGDs (focus group discussions) with local government representatives in the relevant departments. These include Bappeda, the nance department; DPRD, the local revenue department; the local treasury o ce; public works agency; and local supervision agency. To ensure data accuracy, "yes"responses are required to be supported by either relevant documentation and/or cross-checked with additional respondents. Interpretation of results A score is given for each strategic area and survey site, and an overall score is given for each survey site. For comparison and evaluation, strategic area scores can be graded according to the categories shown below. However, the interpretation of the results carries the risk of subjectivity, as the results do depend to a degree on the surveyors' interpretations. Currently, the World Bank and Ministry of Home A airs are working together to improve the survey, especially in trying to minimize the risk of subjectivity. Overall score (%) 80­100 Excellent/fully acceptable 60­79 Very good/substantially acceptable 40­59 Good/fairly acceptable 20­39 Moderate/partially acceptable 0­19 Poor/not acceptable 98 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis ANNEXES Annex D. Gorontalo Public Finance Post-Decentralization Annex D.1. Gorontalo's Consolidated Regional Budget Table D.1.1 Revenues by source Rp million 2002 2003 2004 2005 2006 Description Budget Realization Budget Realization Budget Realization Budget Realization Budget Province Own Source Revenue 23,294 25,538 39,881 35,874 41,862 37,821 45,000 46,113 46,740 Regional Tax 16,844 19,590 28,995 25,058 31,423 30,415 37,635 37,410 43,045 Regional Retribution 740 855 6,722 4,669 1,558 1,361 2,703 2,799 - Pro ts from publicly - - 115 152 300 256 295 291 1,145 owned local enterprise Other 5,710 5,093 4,050 5,996 8,581 5,790 4,367 5,613 2,550 Balancing Fund 133,936 134,381 191,590 191,370 217,782 218,262 217,804 224,087 395,490 Revenue Sharing 3,750 4,959 5,536 6,187 6,275 6,895 5,210 12,992 4,100 from Tax Non Tax Revenue 1,146 382 1,145 274 792 654 - 82 - Sharing (from Natural Resource) DAU 129,040 129,040 180,109 180,109 210,715 210,712 212,594 211,013 391,390 DAK - - 4,800 4,800 - - - - - Revenue Sharing - - - - - - - - - from the province Adjustment - - - - - - - - - Others - - 2,300 217 - - - 36 - Total Revenue 157,230 159,918 233,771 227,461 259,644 256,083 262,804 270,235 442,230 Kabupaten/Kota Own Source Revenue 25,513 25,576 38,234 41,656 50,222 44,850 53,070 45,906 60,642 Regional Tax 3,771 3,964 5,408 5,437 6,786 7,165 8,383 7,314 8,424 Regional Retribution 12,630 12,524 16,289 15,115 28,370 27,058 29,235 26,438 30,846 Pro ts from publicly 517 292 590 977 3,303 1,924 4,174 3,479 3,468 owned local enterprise Other 8,595 8,796 15,947 20,127 11,762 8,703 11,278 8,674 12,901 Balancing Fund 427,322 441,616 550,309 554,362 639,549 626,869 703,637 710,143 1,149,187 Revenue Sharing 25,289 30,836 21,939 25,457 46,831 48,695 53,072 57,291 66,521 from Tax Non Tax Revenue 3,456 2,929 2,591 1,579 1,964 2,967 2,685 3,590 3,664 Sharing (from Natural Resource) DAU 393,123 393,123 478,015 478,015 511,286 509,220 568,218 569,455 948,072 DAK 1,954 11,228 22,864 23,044 44,365 44,196 56,500 56,736 118,286 Revenue Sharing - - 7,530 8,898 7,755 10,806 12,485 12,172 12,645 from the province Adjustment 3,500 3,500 17,370 17,370 27,348 10,986 10,676 10,898 - Others 8,135 9,344 20,575 20,575 18,857 21,046 34,340 34,479 16,747 Total Revenue 460,971 476,536 609,118 616,593 708,628 692,766 791,047 790,528 1,226,577 Service Delivery and Financial Management in a New Province 99 ANNEXES Gorontalo Public Expenditure Analysis Table D.1.2 Expenditures by sector Rp million Expenditures by 2002 2003 2004 2005 2006 sectors Budget Realization Budget Realization Budget Realization Budget Realization Budget Province General government 59,712 52,422 87,054 79,031 113,491 96,993 135,015 115,553 208,071 administration Agriculture 18,867 18,810 14,177 12,049 17,143 15,922 17,778 16,507 29,208 Fisheries and Marine 8,105 6,859 9,371 7,836 7,661 6,886 8,952 7,344 11,606 Mining and energy 2,240 1,675 2,364 1,567 3,000 2,861 2,973 2,779 4,052 Forestry and 2,502 1,769 5,027 4,233 3,936 3,411 4,287 3,865 5,313 plantation Industry and trade 2,240 1,506 3,087 1,889 3,899 3,610 3,846 3,662 6,600 Cooperatives - - - - - - - - - Capital investment - - - - - - - - - Labor 2,469 1,456 4,579 3,415 4,353 3,278 3,208 2,909 4,024 Health 2,164 1,463 2,595 1,797 3,165 2,917 4,739 4,536 6,714 Educatian and 6,012 5,183 14,516 12,074 11,830 10,625 15,098 13,922 20,017 cultures Social 2,124 958 2,140 1,409 3,401 3,329 5,163 4,825 8,980 Spatial planning - - - - - - - - - Housing - - - - - - - - - Public works 7,471 6,140 53,391 51,751 49,226 45,446 59,277 52,872 107,545 Transportation 40,068 38,106 8,821 7,332 6,712 6,129 6,479 5,874 8,280 Environment 3,605 3,457 2,067 1,986 4,354 4,271 4,616 4,215 6,096 Demography - - 500 503 - - - - - Sports - - - - - - - - - Tourism - - - - - - - - - Land - - - - - - - - - Others 11,742 15,939 29,697 27,711 41,258 37,372 16,200 13,557 22,218 Total 169,322 155,739 239,387 214,582 273,430 243,051 287,630 252,421 448,723 Kabupaten/Kota - - - - - - - - - General government 103,943 95,504 186,047 161,491 227,057 198,242 286,928 260,536 424,459 administration Agriculture 12,042 10,970 9,734 8,533 15,804 13,797 23,110 20,784 38,305 Fisheries and Marine 2,386 2,212 1,952 1,746 10,748 9,338 8,157 7,704 14,972 Mining and energy 350 341 - - - - - - 375 Forestry and 5,984 5,218 5,228 4,541 5,855 5,036 6,302 5,763 9,145 plantation Industry and trade 10,969 8,061 11,703 11,384 7,482 5,336 8,315 6,980 10,008 Cooperatives 773 720 1,944 1,699 2,518 2,098 1,739 1,524 2,449 Capital investment - - - - - - - - - Labor 10,812 9,875 2,556 2,256 3,846 3,439 4,291 3,948 6,380 Health 26,956 28,298 48,285 49,479 68,053 66,651 73,358 77,522 102,993 Educatian and 169,031 157,085 236,306 219,965 259,197 240,905 267,989 252,892 345,343 cultures Social 5,748 5,375 15,605 15,092 7,716 6,940 16,936 15,750 28,323 Spatial planning 1,664 1,462 46,226 45,650 - - - - - Housing 15,188 13,450 12,854 12,752 733 532 - - - Public works 62,761 61,811 73,580 73,041 122,467 114,100 117,328 110,210 244,007 Transportation 5,847 5,659 3,872 3,604 12,748 11,755 9,308 8,788 9,544 Environment 2,216 1,963 2,954 2,835 5,919 5,636 5,520 5,266 7,022 Demography 155 131 578 425 5,298 4,898 4,230 3,706 6,704 Sports 1,120 972 - - - - - - 2,058 Tourism 2,507 2,275 3,216 2,960 2,675 1,999 3,882 3,638 13,303 Land 144 108 122 120 82 78 123 122 - Others 52,365 42,883 340 340 1,611 739 691 402 745 Total 492,962 454,374 663,101 617,912 759,808 691,517 838,208 785,536 1,266,134 100 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis ANNEXES Table D.1.3 Expenditures by Economical Classi cation Rp million Expenditures 2002 2003 2004 2005 2006 by Economical Budget Realization Budget Realization Budget Realization Budget Realization Budget Classi cation Province Personnel 21,982 12,680 57,483 43,513 81,220 73,519 71,462 65,883 104,710 Goods and services 12,113 11,099 32,681 30,389 43,596 38,684 59,920 51,036 148,839 O cial travel 3,892 3,669 15,676 14,567 21,033 20,373 28,909 26,879 - Operational and 1,913 1,552 4,049 3,321 6,525 5,839 8,968 7,704 - Maintenance Capital 106,114 99,057 99,801 95,081 79,800 67,263 81,503 70,040 131,635 Others 23,308 27,684 29,697 27,711 41,258 37,372 36,868 30,879 63,538 Total 169,322 155,739 239,387 214,582 273,430 243,051 287,630 252,421 448,723 Kabupaten/Kota Personnel 255,508 231,628 327,323 304,279 402,885 371,683 432,473 405,055 585,397 Goods and services 17,094 15,591 76,921 66,714 80,353 73,481 137,837 134,527 213,316 O cial travel 5,693 4,638 14,840 13,040 20,574 16,671 19,122 17,985 13,730 Operational and 4,545 3,502 20,115 18,576 30,037 27,272 12,179 11,509 7,054 Maintenance Capital 178,092 169,320 200,740 196,740 195,391 179,337 190,766 174,719 360,213 Others 32,030 29,695 23,162 18,562 30,568 23,073 45,971 40,042 100,496 Total 492,962 454,374 663,101 617,912 759,808 691,517 838,348 783,836 1,280,207 Table D.1.4 Deconcentrated central goverment spending Rp million Deconcentrated Central 2002 2003 2004 2005 2006 Government Spending Budget Realization Budget Realization Budget Realization Budget Realization Budget Industry - 548 - 1,339 - 629 - 3,202 4,410 Agriculture, forestry, and - 22,562 - 41,894 - 44,286 - 225,596 310,731 sheries Irrigation - 10,970 - 28,822 - 27,540 - 84,256 146,786 Labor - 644 - 2,950 - 3,373 - 17,183 23,668 Trade and business - 3,378 - 4,294 - 3,381 - 17,224 23,724 development Transportation, - 32,616 - 68,181 - 59,177 - 181,045 315,408 meteorology, and geophysics Mining and energy - - - 6,921 - 1,795 - 9,144 12,595 Regional development - 3,864 - 10,136 - 32,325 - 164,666 226,807 and transmigration Environment and spatial - 777 - 1,725 - 2,014 - 8,686 28,955 planning Education and culture - 56,620 - 94,782 - 82,799 - 387,328 613,453 Demography and family - 1,540 - 4,297 - 4,785 - 39,798 26,826 planning Health, social welfare, - 27,147 - 61,642 - 85,945 - 248,983 499,675 and women's participation Housing and settlement - 28,431 - 44,249 - 13,241 - 40,510 70,575 Religion - 1,038 - 1,633 - 2,023 - 10,322 16,544 Science and technology - 954 - 1,662 - 1,396 - 6,530 10,342 Law - 794 - 27,212 - 15,002 - 98,767 178,757 State apparatus and - 757 - 1,535 - 4,141 - 27,265 49,347 oversight Politics, diplomation, - - - 719 - - - - - communication and information Defence - - - - - 7,031 - 46,289 83,778 Total - 192,640 - 403,993 - 390,882 - 1,616,793 2,642,382 Service Delivery and Financial Management in a New Province 101 ANNEXES Gorontalo Public Expenditure Analysis Annex D.2. Expenditure by Districts Table D.2.1 Revenues by source Rp million Provincial Kabupaten Description Kota Gorontalo Bone Bolango Pohuwato Boalemo government Gorontalo Revenue Own Source Revenue 46,113 22,449 2,481 12,328 4,586 4,062 Regional Tax 37,410 3,646 134 2,210 878 446 Regional Retribution 2,799 16,516 735 5,902 1,614 1,671 Pro ts from publicly owned local 291 709 - 2,768 - 3 enterprise Other 5,613 1,578 1,612 1,449 2,093 1,942 Balancing Fund 224,087 161,776 103,915 225,591 123,121 95,740 Revenue Sharing from Tax 12,992 10,893 11,722 14,617 12,756 7,304 Non Tax Revenue Sharing (from 82 - 281 588 2,096 625 Natural Resource) DAU 211,013 138,105 79,746 181,354 95,725 74,525 DAK - 8,080 11,230 14,220 11,237 11,969 Revenue Sharing from the province - 4,698 937 3,913 1,307 1,317 Adjustment - - - 10,898 - - Others 36 10,778 14,886 - 1,945 6,870 Total penerimaan 270,235 195,003 121,282 237,919 129,652 106,672 Table D. 2.2 Expenditures by sector Rp million Provincial Kabupaten Description Kota Gorontalo Bone Bolango Pohuwato Boalemo government Gorontalo Expenditures by sectors General government administration 115,553 58,549 34,573 71,450 40,405 55,559 Agriculture 16,507 3,296 4,498 4,414 5,408 3,168 Fisheries and Marine 7,344 - 1,817 1,957 2,083 1,847 Mining and energy 2,779 - - - - - Forestry and plantation 3,865 - 980 1,867 1,141 1,775 Industry and trade 3,662 1,349 1,417 2,329 1,165 720 Cooperatives - 841 - 682 - - Capital investment - - - - - - Labor 2,909 521 597 856 1,092 882 Health 4,536 40,276 6,216 16,394 5,320 9,317 Educatian and cultures 13,922 67,427 43,011 98,873 28,553 15,028 Social 4,825 1,798 1,285 3,949 - 8,718 Spatial planning - - - - - - Housing - - - - - - Public works 52,872 17,809 21,388 27,664 28,358 14,992 Transportation 5,874 2,131 886 2,981 1,952 838 Environment 4,215 5,266 - - - - Demography - 1,038 895 1,496 - 276 Sports - - - - - - Tourism - 797 - 2,841 - - Land - 122 - - - - Revenue sharing and subsidy 12,854 - - - - - Others 703 - - - - - Carry over spending - - - 402 - - Miscellaneous spending - - - - - - Total 252,421 201,220 117,562 238,156 115,477 113,120 102 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis ANNEXES Table D.2.3. Expenditures by economic classi cation Rp million Provincial Kabupaten Description Kota Gorontalo Bone Bolango Pohuwato Boalemo government Gorontalo Expenditures by economic classi cation Personnel 65,883 99,266 64,078 153,943 37,025 50,742 Goods and services 51,036 35,336 16,234 35,455 24,532 22,970 O cial travel 26,879 10,627 - - 4,022 3,336 Operational and Maintenance 7,704 7,965 - - 1,157 2,387 Capital 70,040 36,863 34,667 28,560 43,717 30,913 Others 30,879 11,164 2,583 20,199 5,024 2,772 Total 252,421 201,220 117,562 238,156 115,477 113,120 Service Delivery and Financial Management in a New Province 103 ANNEXES Gorontalo Public Expenditure Analysis Annex E. Socio-Economic Indicators Post-Decentralization Annex E.1. Regional spending has increased since decentralization but not GRDP 1999 12 10 8 million) National average (23) (Rp 6 capita per 4 GDP 2 Regional Gorontalo (49) - - 500 1,000 1,500 2,000 Regional spending per capita (Rp '000) 2004 12 10 National average (17) million) 8 (Rp 6 capita per 4 GDP 2 Gorontalo (29) Regional - - 500 1,000 1,500 2,000 Regional spending per capita (Rp '000) Source: World Bank sta calculations based on SIKD MoF, BPS. Note: The size of circle and number in brackets represent poverty headcount (%). Riau, DKI Jakarta, East Kalimantan, and Papua are excluded for visual purposes. 104 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis ANNEXES Annex E.2. Gorontalo is a Poor Region Pre and Post Decentralization Poverty Incidence (%) 1999 2004 Prop. Nanggroe Aceh Darussalam 17.4 28.3 Prop. Sumatra Utara 18.5 14.8 Prop. Sumatra Barat 17.2 10.4 Prop. Riau 18.3 13.0 Prop. Jambi 26.5 12.4 Prop. Sumatra Selatan 26.0 20.8 Prop. Bengkulu 23.3 22.3 Prop. Lampung 24.6 22.1 Prop. Jawa Barat 20.6 12.1 Prop. Jawa Tengah 27.4 21.0 Prop. Yogyakarta 24.7 19.1 Prop. Jawa Timur 26.3 20.0 Prop. Kalimantan Barat 25.5 13.8 Prop. Kalimantan Tengah 22.1 10.4 Prop. Kalimantan Selatan 18.1 7.2 Prop. Kalimantan Timur 19.1 11.5 Prop. Sulawesi Utara 19.1 8.7 Prop. Sulawesi Tengah 26.4 21.6 Prop. Sulawesi Selatan 22.4 14.8 Prop. Sulawesi Tenggara 27.0 21.8 Prop. Bali 9.9 6.8 Prop. Nusa Tenggara Barat 28.8 25.3 Prop. Nusa Tenggara Timur 35.8 27.7 Prop. Maluku 40.4 32.0 Prop. Papua 38.0 38.4 Prop. Maluku Utara - 12.3 Prop. Banten - 8.5 Prop. Bangka Belitung - 9.0 Prop. Gorontalo 49.5 28.9 National Average 23.4 17.2 Kab. Bolaang Mongondow 30.4 9.8 Kab. Minahasa 13.0 9.0 Kab. Sangihe Talaud 36.8 13.2 Kota Bitung 13.5 8.7 Kota Manado 8.9 4.1 North Sulawesi Average 19.1 8.7 Kab. Boalemo na 32.5 Kab. Gorontalo 59.8 32.4 Kota Gorontalo 13.8 10.9 Gorontalo Average 49.5 28.9 Source: World Bank sta calculation based on BPS data Service Delivery and Financial Management in a New Province 105 ANNEXES Gorontalo Public Expenditure Analysis Annex E.3. Gorontalo Has the Lowest Real GRDP Per Capita, 2005 DKI Jakarta Kalimantan Timur Kepulauan Riau Riau Papua Nanggroe Aceh Darussalam Papua Barat Bangka Belitung National Average Sumatra Selatan Kalimantan Tengah Sumatra Utara Jawa Timur Kalimantan Selatan Sumatra Barat Jawa Barat Banten Bali Sulawesi Utara Kalimantan Barat Yogyakarta Sulawesi Tengah Jambi Sulawesi Selatan Jawa Tengah Sulawesi Tenggara Lampung Bengkulu Nusa Tenggara Barat Maluku Maluku Utara Nusa Tenggara Timur Gorontalo 0 5 10 15 20 25 30 35 Millions Source: World Bank sta calculations based on BPS, 2005. Annex E.4. Sectoral Real Wages in Gorontalo Sectors 2001 2002 2003 2004 2005 2006 Agriculture, Plantation, Animal 578,419 426,234 472,556 627,209 239,131 368,270 Husbandr Mining and Excavation 377,025 602,480 530,654 1,099,643 400,000 435,374 Manufacturing Industry 584,278 455,363 599,299 523,268 372,747 357,610 Electricity, Gas, and Water - 528,705 701,401 1,305,463 350,000 695,614 Building Construction 612,371 549,235 742,841 894,962 775,748 593,224 Trading, Restaurant, and 280,495 356,473 351,399 419,056 422,871 448,797 Accommodation S Transportation, Storing, and 488,151 841,020 957,531 645,665 603,486 498,452 Communicati Financial Institution, Real Estate, Leas 630,993 1,308,254 1,034,294 1,153,892 629,557 811,410 Public/Social/Personal Service 1,036,684 912,264 1,061,457 1,106,432 939,328 882,833 Average wage 782,664 754,329 855,086 878,717 689,673 638,987 Source: World Bank sta calculations based on Sakernas (BPS). 106 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis ANNEXES Annex E.5. Half of Gorontalo's Workforce is in Informal Agriculture 100% 90% 80% 70% Service Formal 60% Service Nonformal Manufacturing Formal 50% Manufacturing Nonformal 40% Agriculture Formal Agriculture Nonformal 30% 20% 10% 0% 2001 2002 2003 2004 2005 2006 Source: World Bank sta calculations based on Sakernas (BPS). Annex E.6. Construction Price Index used in DAU 2007 Estimation by MoF 350 300 250 200 150 100 50 0 Bali Riau Barat Utara Papua Timur Utara Timur Barat Barat Barat Jambi Utara Barat Barat Timur Maluku Tengah Selatan Tengah Selatan Jakarta Selatan Banten Tengah Belitung Tenggara Gorontalo Bengkulu Lampung Kelpulauan Jawa Papua Darussalam DKI Jawa Yogyakarta Maluku Jawa DI Sulawesi Sulawesi Riau Tenggara Tenggara Sumatera Sumatera Bangka Sulawesi Kalimantan Kalimantan Aceh Sulawesi Sumatera Sulawesi Kalimantan Kalimantan Nusa Nusa Nanggroe Source: DAU 2007 base data (BPS). Service Delivery and Financial Management in a New Province 107 ANNEXES Gorontalo Public Expenditure Analysis Annex E.7. Fiscal Revenue Per Capita, 2006 6 5 million) 4 (Rp 3 capita per 2 Revenue 1 0 Bali BantenBaratTimurTengah UtaraBaratSelatan SelatanTimur Barat BaratJambiUtara Riau Riau Selatan Tengah Belitung MalukuUtara Tengah TimurPapuaBarat JawaJawaJawa Lampung Bengkulu Tenggara IYogyakarta Gorontalo Darussalam Papua D Sumatra Maluku Tenggara Sumatra Tenggara Sulawesi Kepulauan Sumatera Sulawesi Kalimantan Sulawesi Bangka Aceh Kalimantan Kalimantan Sulawesi Nusa Kalimantan Nusa KepulauanNanggroe Source: World Bank sta calculations based on SIKD. Annex E.8. Main Spending Items, 2005 Agriculture 6% Infrastructure & Mining and Energy transport 0% 22% Industry, Trade, Education cooperatives, 21% manpower 2% Other 20% Health 6% Government Social, housing, Administration 37% 3% Environment 1% Others 2% Source: Gorontalo PEA database, Universitas Gorontalo, 2007. 108 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis ANNEXES Annex E.9. District Inequalities Student-teacher No of Students No of Teachers ratio Pohuwato Primary education 16,323 549 30 Junior secondary education 4,287 238 18 Senior secondary education 1,621 153 11 Boalemo Primary education 16,173 608 27 Junior secondary education 4,154 309 13 Senior secondary education 1,845 157 12 Kabupaten Gorontalo Primary education 66,109 2,858 23 Junior secondary education 12,760 1,280 10 Senior secondary education 6,133 657 9 Bone Bolango Primary education 17,291 941 18 Junior secondary education 4,936 442 11 Senior secondary education 2,539 266 10 Kota Gorontalo Primary education 20,053 1,224 16 Junior secondary education 7,996 535 15 Senior secondary education 7,559 560 13 Source: Dinas Pendidikan Provinsi Gorontalo, 2007 Annex E.10. Economic Classi cation Education Expenditures (Shares %) Gorontalo Indonesia Districts Province Districts Province Wages 86.1 33.0 86.4 34.4 Goods and Services 2.0 27.4 4.9 37.1 Travel 0.2 4.3 0.3 2.3 Maintenance 0.5 1.0 2.0 2.8 Development 11.3 22.4 5.1 22.9 Other 0.1 11.9 1.2 0.7 Total 100 100 100 100 Source: BKD Gorontalo Annex E.11. Realized Education Expenditure, 2002-06 2002 2003 2004 2005 2006* Rp % Rp % Rp % Rp % Rp % Kabupaten 157,085 72 219,965 67 240,905 72 252,892 39 345,343 35 Province 5,183 2 12,074 4 10,625 3 13,922 2 20,017 2 Dekonsentrasi 56,620 26 94,782 29 82,799 25 387,328 59 613,453 63 Total 218,888 100 326,820 100 334,329 100 654,141 100 978,813 100 Source: Gorontalo PEA database, Universitas Gorontalo, 2007 Service Delivery and Financial Management in a New Province 109 ANNEXES Gorontalo Public Expenditure Analysis Annex E.12. Health Insurance Coverage 35 30 25 Health card 20 24 JPKM 15 % Self 15 Jamsostek ASKES 0.7 10 3 0.4 2.5 2 5 0.5 5.4 5 0 Indonesia Gorontalo Source: Susenas, 2006. Annex E.13. Road Condition Type of road Good Fair Poor and Bad km % Km % km % National 179.73 29,17 358,12 58,11 78,39 12,72 Province 152.4 32,55 315,82 67,45 0,00 0,00 Gorontalo District 1490.75 49,05 118,34 3,89 1429,94 47,05 Total 1822.88 44,21 792,28 19,21 1508,33 36,58 Indonesia National 10696.68 30.9 17299.09 50 6633.07 19.1 Source: BKD Gorontalo Annex E.14. Economic Classi cation Infrastructure Expenditures Gorontalo Indonesia Districts Province Districts Province Wages 4.1 9.1 7.2 10.9 Goods and Services 1.9 12.0 5.8 8.1 Travel 0.8 0.0 0.5 0.9 Maintenance 2.2 0.0 15.4 16.1 Development 91.1 78.8 71.0 64.1 Other 0.0 0.0 0.2 0.0 Total 100 100 100 100 Source: BKD Gorontalo Annex E.15. Provincial Share of Sub-national Expenditures 2002 2003 2004 2005 2006 Agriculture 63 59 54 44 43 Fisheries 76 82 42 49 44 Forestry 25 48 40 40 37 Source: BKD Gorontalo 110 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis ANNEXES Annex E.16. Economic Classi cation Agriculture Expenditures Gorontalo Indonesia Districts Province Districts Province Wages 34.9 33.8 51.1 44.7 Goods and Services 18.4 39.2 18.3 25.0 Travel 3.0 5.8 4.0 7.1 Maintenance 4.2 1.9 4.1 5.4 Capital 39.6 19.2 21.3 17.9 Other 0.0 0.0 1.3 0.0 Total 100 100 100 100 Source: BKD Gorontalo Annex E.17. Economic Classi cation Fisheries Gorontalo Indonesia Districts Province Districts Province Wages 21.1 29.0 34.6 29.4 Goods and Services 5.7 20.3 16.0 29.9 Travel 1.9 4.3 4.6 4.6 Maintenance 0.4 3.1 4.1 5.7 Capital 71.3 21.6 39.9 30.3 Other 0.0 21.7 0.7 0.0 Total 100 100 100 100 Source: BKD Gorontalo Service Delivery and Financial Management in a New Province 111 ANNEXES Gorontalo Public Expenditure Analysis 112 Service Delivery and Financial Management in a New Province Gorontalo Public Expenditure Analysis ANNEXES Service Delivery and Financial Management in a New Province 113