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Budgets

Already one of the poorest regions in Indonesia, the island of Nias was badly affected by the twin disasters of the 26 December 2004 tsunami and a devastating earthquake that struck three months later, on 28 March 2005. Almost 1,000 lives were lost in the two disasters and buildings and infrastructure were destroyed in coastal areas and across the island.

This report documents the significant progress that has been made over the past two years but also highlights some troubling trends. In particular, the report shows how funds are not being disbursed at the desired pace and the reconstruction efforts face enormous challenges particularly related to significant geographic and sectoral gaps. The report argues that the budget allocations to governments for operations and maintenance remain small and jeopardise the sustainability of the work that has been undertaken.

The paper discusses the particular economic and political context of Nias, highlighting the following:

• the island’s under-developed economy was severely disrupted by the double disasters, contracting by 3.4 percent in 2005
• the remoteness of Nias island is the main reason for the slow progress of reconstruction
• district government revenues in Nias have also increased significantly following decentralisation
• despite a significant increase in transfers from the central government in 2006, Nias and Nias Selatan continue to receive among the lowest per capita revenues of all districts in North Sumatra
• low per capita public revenue is related to relatively low General Allocation Fund (DAU) allocations from the central government to Nias and Nias Selatan
• improving local capacity is crucial given greater authority and responsibilities following decentralisation and the low capacity of the two district governments in Nias

The report highlights the following issues with respect to public service delivery:

• Nias and Nias Selatan districts have some of the lowest education outcomes in North Sumatra
• given the high spending levels in education, it is unlikely that education spending can increase its share of district budgets
• despite improvements in recent years, health outcomes in Nias island still lag behind provincial and national averages
• public spending on health is significantly lower on the island compared with North Sumatra or Indonesia as a whole
• access to basic infrastructure, such as clean water, sanitation and electricity on the island, consistently lags behind the averages for North Sumatra and Indonesia as a whole
• despite the identified needs in the infrastructure sector, in real terms overall spending on infrastructure in both districts declined significantly from Rp 58 billion in 2001 to Rp 25 billion in 2005

The report makes the following recommendations for improving public service delivery on the island:

• the central government should increase its allocation of resources
• district governments need to improve public spending patterns while simultaneously improving their fiscal positions
• both districts need to improve their public financial management capacity in order to improve spending patterns
• district governments need to improve the allocation of resources within each sector, particularly since further expenditure increases in some sectors are unlikely
• district governments need to be more involved in the reconstruction of the island
  

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