The Asian Development Bank (ADB) has approved a $500 million policy-based loan to support the Government of Indonesia’s efforts to expand financial access among micro, small, and medium-sized enterprises and marginalized groups such as women and youth.
The Promoting Innovative Financial Inclusion Program will help the government better target and track financial inclusion, improve the payments infrastructure, and strengthen the regulatory framework for digital financial services, data privacy, consumer protection, and financial literacy. The program will help build a more inclusive financial services sector, which will reduce poverty and inequality and support Indonesia’s long-term sustainable development.
“The program’s reforms support policy and technology enablers to foster innovations and boost financial inclusion by providing access to formal financial products and services, improving their quality, and increasing their use by financially underserved populations,” said ADB Financial Sector Specialist for Southeast Asia Poornima Jayawardana. “Financial inclusion will play an important role in Indonesia’s recovery from the coronavirus disease (COVID-19) pandemic. More equitable, efficient access to financial products and services will support government measures to mitigate the pandemic’s economic and social impacts, rebuild livelihoods, and prepare for future economic shocks.”
The Financial Inclusion Insights Survey by the Indonesian National Council for Financial Inclusion shows the percentage of Indonesian adults with a bank account rose from 35% in 2016 to 56% in 2018. Despite the progress, Indonesia still lags behind neighbors such as Malaysia and Thailand.
Providing financial services to all is challenging in a country as geographically and culturally diverse as Indonesia, and significant disparities remain in access to a range of financial products among regions and population groups. Further, financial vulnerabilities are worsened by the COVID-19 pandemic, as those without access to financial services also tend to lack savings or credit to weather the economic downturn.
ADB’s program supports the government’s goal of increasing the number of Indonesians using financial products or services offered by formal financial institutions to 90% by 2022, up from 76% in 2019.
ADB has been supporting financial inclusion in Indonesia through lending and technical assistance since 2002, when it helped develop the microfinance sector to expand access to finance for micro, small, and medium-sized enterprises.
New Financing to Help Indonesia Achieve a Deeper and More Resilient Financial Sector
The World Bank’s Board of Executive Directors today approved a loan of US$400 million to support reforms that will help the Government of Indonesia increase the depth, improve the efficiency, and strengthen the resilience of the financial sector.
The COVID-19 pandemic has caused recession in Indonesia, with potentially long-lasting financial, fiscal, and social implications. While the banking system is well-capitalized and profitability is high, the lack of depth in the Indonesian financial markets increases the country’s vulnerability to external shocks. The new financing is designed to help the country address financial sector vulnerabilities heightened by the pandemic. It does so through support to measures such as extending financial services to previously underserved groups, reducing the costs of such services for individuals and businesses alike, and strengthening the capacity of the financial sector to withstand financial and non-financial shocks.
“The COVID-19 outbreak has made structural reforms to address financial sector vulnerabilities urgent. The Government of Indonesia is committed to strengthening the financial sector given its critical role in sustaining Indonesia’s growth and in reducing poverty, especially during the COVID-19 recovery phase. “ said Minister of Finance of the Republic of Indonesia, Sri Mulyani Indrawati.
The new development policy loan will support Indonesia’s financial sector reforms through three key approaches. First, it aims to increase the depth of the financial sector by expanding the access to financial services – including by youth and women – broadening the range of financial products, and incentivizing long-term savings. These efforts would reduce Indonesia’s vulnerability to foreign portfolio outflows.
Second, it aims to improve the efficiency and lower the cost of the financial sector by strengthening the insolvency and creditor rights framework, protect consumers and personal data, and make payment systems more efficient and faster by utilizing digital technology. The latter will help large-scale social assistance payments to vulnerable people during the crisis.
Third, it aims to boost the capacity of the financial sector to withstand shocks by strengthening the resolution framework to avoid financial activities disruptions in the event of a bank failure, advancing the effectiveness of financial sector oversight and implementing sustainable finance practices.
“This financing complements the government’s efforts to cushion the financial sector and the overall economy from the impacts of the COVID-19 crisis. By making financial services more transparent, reliable and technology-oriented, savings can be channeled into the most productive investments in a less costly, faster and safer way, thus opening opportunities for people to invest in their future and to protect themselves from unexpected shocks,” said Satu Kahkonen, World Bank Country Director for Indonesia and Timor-Leste.
The World Bank’s support to financial sector reforms in Indonesia is an important component of the World Bank Group’s Country Partnership Framework for Indonesia, whose engagement area on strengthening economic resilience and competitiveness contains a specific objective focused on increasing the depth, improving the efficiency and strengthening the resilience of the financial sector. The new financing is also based on the World Bank Group’s GRID (green, resilient, inclusive development) principles.
The BRICS Foreign Ministers Meet To Review Progress
Due to the current global situation of coronavirus pandemic, a meeting of Brazil, Russia, India, China and South Africa (BRICS) Ministers of Foreign Affairs/International Relations via videoconference was held early June under the Chair of Indian Ministry of Foreign Affairs. As stipulated by the guidelines, India took over in January 2021.
The five foreign ministers held a frank exchange of views on topical issues of the international agenda, including efforts to strengthen international institutions, regional conflicts, joint efforts to combat new challenges and threats, including the COVID-19 pandemic, and cooperation between the five states at multilateral fora.
They also discussed the current situation, and future prospects of cooperation between the five countries. In the context of the current epidemiological situation, all BRICS countries expressed their solidarity with India and its people. The burden has increased on the healthcare systems. Russia expresses willingness to continue helping India counter this dangerous virus.
Amid the coronavirus-caused crisis, the ministers give priority to invigorating business, trade, economic and investment ties inside BRICS. In this context, they consider it important to implement the BRICS economic partnership strategy endorsed by the leaders during the last summit in 2020.
During the discussions, they acknowledged that the number and complexity of the challenges to the international community and sustainable global development are growing. These are the threats of terrorism, transnational crime, including in the digital sphere, climate change and an expanding rift between the rich and the poor. These problems can be addressed collectively.
Following the meeting, the ministers approved a Joint Communiqué and a Joint Statement on Strengthening and Reforming the Multilateral System. At the 12th BRICS gathering last year, the Foreign Ministers of Brazil, Russia, China and South Africa extended full support to India for its BRICS Chairmanship in 2021 and the holding of the 13th BRICS Summit. The five BRICS countries together represent over 3.1 billion people, or about 40 percent of the world population.
World Bank Supports the Modernization of Tajikistan’s Tax Regime
The World Bank’s Board of Executive Directors approved today $50 million in grant financing from the International Development Association for the Tajikistan Tax Reform Operation. This project will support the implementation of the revised tax code and the modernization of the tax system to balance the objectives of domestic revenue mobilization and private sector development.
“When incentives are such that enterprises and investors actually benefit from being successful in their businesses and honest vis-à-vis the State, the private sector will start to play an increasingly larger role in fostering innovation, creating employment, and broadening the tax base,” said Jan-Peter Olters, World Bank Country Manager for Tajikistan. “A consistent tax code with predictable tax obligations, as currently prepared by the Government, is expected to promote a more dynamic, innovative, and export-oriented private sector—once decisions on tax audits will be based on risk assessments and consistency checks done within the Tax Committee.”
The Government of Tajikistan has made tax reform a priority, reflecting the increasing importance of improving the business and investment climate and enhancing the competitiveness of the national economy. With the new tax code, currently under review by the Government, Tajikistan seeks to modernize tax administration and base tax policy and revenue collection processes on international practice.
This reform represents a critical building block in efforts to meet the key objectives of the National Development Strategy to 2030, which is to increase people’s incomes by up to 3.5 times and halve poverty by 2030. To meet this goal, Tajikistan would need the contribution of a dynamic private sector, which can finance investments, foster innovation, create jobs, and increase exports.
Currently, the private sector in Tajikistan provides only about one-quarter of total investments and produces less than one-third of industrial output, while providing only limited formal employment opportunities in a young and growing economy. The COVID-19 pandemic has negatively impacted government revenues and tax collection efforts, while increasing the demand for social spending and levels of public debt. This context has made the tax reform even more urgent.
The Tajikistan Tax Reform Operation will contribute to the ongoing tax reform by: 1) simplifying the tax system; 2) enhancing the quality of taxpayer services, and 3) improving voluntary compliance.
The activities, which will support these three broad outcomes, include the development of secondary legislation necessary for implementation of the new Tax Code, the creation of a modern risk assessment methodology based on international experience to guide audits, the introduction of mechanisms for improved effectiveness and transparency of tax expenditures; the introduction of cost-benefit analyses for tax incentives; the simplification of tax reporting requirements and harmonization of tax and financial accounting reporting for selected taxes; the introduction of an automated VAT refund system; the automation of selected taxpayer services; the upgrade of taxpayer service standards based on taxpayer feedback; the implementation of digital signature and upgrade of ICT infrastructure in the Tax Committee; capacity development on modern approaches in tax policy and tax administration; and taxpayer outreach and education.
To maximize the impact of the project, the World Bank is using a financing instrument called Program-for-Results (PforR), which links disbursement of funds directly to the achievement of specific outcomes. The project will be implemented by the Ministry of Finance of the Republic of Tajikistan and the Tax Committee under the Government of Tajikistan over the next six years.
The World Bank is financing 21 projects in Tajikistan totaling $1.1 billion. Since 1996, the World Bank has provided over $2 billion in IDA grants, highly concessional credits, and trust funds for Tajikistan. The World Bank Group is committed to continuing its support for Tajikistan as it strives to improve the lives and meet the aspirations of its young and growing population.
The Leaders of the Western World Meet
The annual meeting of the G7 comprising the largest western economies plus Japan is being hosted this year by the United...
You could have been black too: Describing racism in Venezuela
“Black woman! . . . if you were white and had straight hair / My mother told me in distress...
The Inevitable Geopolitical Dilemma of Climate Change
“Go and explain to developing countries why they should continue living in poverty and not be like Sweden”, “No one...
Kenya Receives $750 million Boost for COVID-19 Recovery Efforts
To reinforce Kenya’s resilient, inclusive and green economic recovery from the COVID-19 crisis, the World Bank approved $750 million in...
World Bank Supports Croatia’s Firms Hit by COVID-19 Pandemic
Tamara Perko, President of the Management Board of the Croatian Bank for Reconstruction and Development (HBOR) and Elisabetta Capannelli, World...
Assessing the trends of Globalization in the Covid Era
Coronavirus largely represents acceleration in existing globalization trends, rather than a full paradigm shift. Globalization has ebbed and flowed over...
Zimbabwe’s Economy is Set for Recovery, but Key Risks Remain
Gross Domestic Product (GDP) growth in Zimbabwe is projected to reach 3.9 percent in 2021, a significant improvement after a...
Economy3 days ago
Is Bangladesh falling into a China’s Debt-Trap Like Sri-Lanka?
Europe3 days ago
Failed Diplomacy: A hot tension between Spain and Morocco
Intelligence2 days ago
Uranium is being traded freely in the open market in India
East Asia3 days ago
Taiwan: The First and Oldest ‘Thorn’ between China and the West
New Social Compact3 days ago
Global Health Security: The need for collective action
Terrorism2 days ago
FATF: A Sword of Damocles or a tool of financial discipline?
Middle East3 days ago
Powershift in Knesset: A Paradigm of Israel’s Political Instability
Eastern Europe3 days ago
Is Ukraine at War? Navigating Ukraine’s Geopolitical Conundrum