After having recorded consistent budget surpluses since 2010, the government’s fiscal position deteriorated to a balanced budget in 2015, followed by budget deficits during 2016 and 2017 due to reform slippage and a change in government priorities. Joint policy dialogue with development partners through the government-led Core Economic Working Group (CEWG) lapsed during this period. Following a leadership change in November 2017, the government passed a balanced budget for 2018 to support fiscal consolidation. The Asian Development Bank (ADB) undertook a consultation mission in September 2017 to engage the government in a policy dialogue on the Improved Fiscal Sustainability Reform Program, subsequently approved by ADB for a grant of $5 million in November 2018.
The program’s intended effect was to strengthen public sector management and service delivery. Its intended outputs, comprising eight policy actions linked to grant disbursement, supported three reform areas: (i) public financial management (PFM), (ii) fiscal sustainability, and (iii) private sector investment climate. Policy actions implemented under the first reform area aimed to improve the quality of budget systems and institutions. Those under the second sought to improve budget execution, as well as tax administration and compliance. Actions under the third reform area aimed to support the shift to a broad-based, competitive economy that encourages women’s participation and has a business-friendly tax system that supports economic growth.
All policy actions and corresponding sub-actions were achieved before grant disbursement. Under reform area 1: the PFM roadmap 2014−2017 was reviewed; a new public financial management action plan 2018–2019 was prepared; debt management regulations under the Public Financial Management Act 2013 were approved; and two new laws were enacted─ the Anticorruption Act (2018) that established the role of an Independent Commission Against Corruption and the Whistleblower Act 2018. Under reform area 2: public expenditure was reduced by 1.5% in 2018; and taxation reforms on goods valuation, resident withholding tax, and alcohol and tobacco excise taxes were implemented. Under reform area 3: a National Competition Policy that has women’s economic empowerment as an objective was approved. A Sustainable Forestry Policy and a National Minerals Policy were likewise put in place to support the country’s transition to more sustainable growth.
Program output and outcome targets, linked to the completion of policy actions, were consequently substantially achieved. The fiscal deficit was contained in 2018, although it was not maintained in 2019 as overall deficit was estimated to be slightly larger than targeted (1.7% of gross domestic product compared with the 1.5% target). Company registrations, indicating a growing private sector, rose as planned; and as targeted, women comprise 24% of the shareholders of the newly registered companies. Reprioritization of the development budget, which had grown significantly since 2015, to cover only the most pressing priorities and projects with contractual commitments resulted in its increased utilization. Development budget utilization was 93% in 2018 and 82% in 2019.
The Ministry of Finance and Treasury was the executing agency and one of the implementing agencies. The Ministry of Commerce, Industry, Labor, and Immigration; the Ministry of Forestry and Research; the Ministry of Mines, Energy and Rural Electrification; and the Office of the Prime Minister were the other implementing agencies.