On January 21, 2021, the World Bank’s Executive Board approved a US$500 million loan to strengthen Indonesia’s financial and fiscal flexibility. The loan will help Indonesia establish and strengthen its fiscal response to natural disasters, climate risks and health-related shocks.

These shocks and disasters have become a constant threat to Indonesia's development process. From 2014 to 2018, the central government spent between US$90 million and US$500 million on disaster response and recovery each year, while local governments estimated that they spent US$250 million in the same period.

Due to climate change and urban development, the cost of disasters is expected to increase further, which will increase the burden of public expenditures. As the COVID-19 pandemic has caused multiple financial, fiscal and social impacts on Indonesia, the current needs are particularly urgent.

“Funding preparations for health crises such as disasters, climate shocks and COVID-19 are becoming more and more important for Indonesia. This support will help the government to respond more targeted and timely, reduce the impact of disasters, and help protect Indonesia’s development and progress,” said Sri Mulyani Indrawati, Minister of Finance of the Republic of Indonesia.

After disasters and climate shocks, planning an effective fiscal response can help protect the budget and ultimately the population. By reducing the impact of disasters, this kind of planning can help protect the poor and vulnerable groups, who often bear the brunt of disasters because they often live in dangerous areas, lack access to basic services, and have limited financial resources to cope with post-disaster situations.

Strengthen Indonesia's fiscal and financial resilience

This new project will strengthen Indonesia’s fiscal and financial resilience through the Disaster Coordination Fund, thereby supporting the government’s National Disaster Risk Financing and Insurance Strategy. This fund will become the central mechanism through which funds can flow out of different sources after the disaster. The fund will seek to use the domestic and international insurance markets to provide financial capacity to support the fund.

The project will also help ensure the effective and transparent flow of funds to relevant government agencies, including tracking disaster-related expenditure budgets, providing faster social assistance to disaster victims, and improving preparedness plans for health shocks. After the disaster, the central and local government agencies will receive more, faster and more effective financial support.

"Improved funding availability and funding flow will ultimately provide support to the Indonesian people who will benefit from a faster and more targeted response to disasters and health shocks. This will particularly benefit those most affected by poverty and vulnerability, They are most affected by the delay in disaster response and often lose their livelihoods and income, which puts them in poverty." Said Satu Kakonen, World Bank Country Director for Indonesia and East Timor.

The project is supported by a grant of US$14 million from the Global Venture Capital Fund to help build technological capabilities, environmental and social management systems, bring new technologies to the management of pooled funds, and invest in evaluation and learning, including how to best Vulnerable groups provide the best services. The Global Venture Capital Fund is supported by a multi-party endowment trust fund of more than US$200 million from Germany and the United Kingdom, providing grants and technical expertise to help developing countries protect their progress and speed up from climate shocks, disasters and crises Recovered from the financial impact.Editor/Huang Lijun