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Aceh Public Expenditure Analysis Shows Record Rise in Revenues but Spending Must Target Effective Services to Reduce High Poverty Levels

Available in: Bahasa (Indonesian)

Banda Aceh: Ratnasari Dewi:
M. 08126992683, E.   
Jakarta: Wiwiek Sonda
Ph. 5299-3084/ 3146


Banda Aceh, September 12, 2006:  A joint report by the World Bank and leading universities in Aceh, supported by the Government of Indonesia, has highlighted the record rise in revenues – 6 times that of 1999 – has failed to date to alleviate high poverty levels. Aceh remains the fourth poorest province in Indonesia.

The Aceh Expenditure Analysis for 2006, examines revenues, expenditures and financial management capabilities to handle the large fiscal resources available to Aceh’s provincial and local government. “We now have a comprehensive picture of existing and near future financial resources for Aceh for the first time,” said Joel Hellman, World Bank Coordinator of Aceh Reconstruction, “It is enough to lift the majority of Acehnese out of poverty if wisely spent. However, increasing Aceh governments’ capacity as well as rebalancing expenditure towards investment and development is urgent if the Achenese are to enjoy the fruits of peace and prosperity.”

Following decentralization, the granting of special autonomy status in 2001 and the huge reconstruction resources for tsunami recovery -by June 2006, US$4.9 billion worth of reconstruction projects were underway against total pledges of US$8 billion – Aceh’s government is managing 6 times the resources it had in 1999. The introduction of the Special Autonomy Fund (Dana Otsus) in the new Law on Government of Aceh (11/2006) further increases revenues from 2008 onwards to some Rp. 13 trillion (US$1.4 billion per year), more than compensating for the decline in oil and gas production.

Yet, despite its rich natural resources, Aceh has the fourth highest poverty head count: 28.5% before the tsunami, it is likely to have increased since then. “The additional resources offer an incredible opportunity to improve public services delivery and the productive capacity of the region,” says Wolfgang Fengler, Sr. Economist who led the report. “The next 18 months will be critical. The reconstruction program is likely to peak and local governments must work to make reconstruction and development programs sustainable.”

The end of the conflict between GAM and the Government of Indonesia also offers an opportunity to improve the lives of the Acehnese, but a survey shows low local government capacity to manage public funds with even lower capacity in many districts and in some key areas of public financial management, such as external audits, the regulatory framework as well as in the planning and budgeting processes and capabilities. So far, little has been done to redress the situation.

Ahya Ihsan, Acehnese co-author of the report, says, “Local government capacity to manage public funds is still very weak and the increased  spending on salaries and facilities is a very worrying trend. For us Acehnese, one of the most critical reforms is capacity building for these officials and reforming the incentives and sanctions regime governing their activities.

While regional spending has tripled since decentralization, the provision of public services is still relatively poor as resources have not been optimally allocated due to salary increases with the mushrooming of administrative structures following the splitting of kabupaten and provinces. The report finds that although the resources for health, education and infrastructure sectors are fairly large, government spending is concentrated in routine expenditure instead of identifying and addressing needs. The report also warns that the regional government seems ill equipped to manage the infrastructure assets that will become its responsibility 2009 when the reconstruction ends.

Amin Subekti, Deputy of Finance and Planning of BRR, explains, “We are pleased with this report which will help BRR to assess the challenges that Aceh’s government faces currently.  The BRR will close down  in 2009, therefore this report can help us to develop a succession strategy and synergize our program with the provincial and local government."

Prof. Dr. A. Rahman Lubis, M.Sc., Head of BAPPEDA, Aceh, says, "This report shows us that we have big challenges ahead and we have to work hard to manage the substantial resources of reconstruction and decentralization for the benefit of all Acehnese ."


Poverty Headcount small


Poverty Headcount small


Access the report: Aceh Public Expenditure Analysis (1.8mb pdf)
View the presentation: Spending for Reconstruction and Poverty Reduction (287kb pdf)

For more information about the World Bank and partners on tsunami recovery and reconstruction efforts, please visit:

For more information about the World Bank in Indonesia, please visit:


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