Public Debt Management and Audit: SAI Indonesia s Practice€¦ · Auditors should be equipped with knowledge on macroeconomics and fiscal policy; Training on public debt is necessary

Independence - Integrity - Professionalism

The 2019 Annual Meeting of INTOSAI WGPD

Public Debt Management and Audit:

SAI Indonesia’s Practice

Baku, Azerbaijan, 23-25 May 2019


The Agenda

Legal Framework

Overview

Debt Risk Indicators3

Role of SAI Indonesia

2

Findings & Recommendations

1

2

3

4

5

6 Conclusion

Indonesian Legal Framework on Government Debt

Law 17 Year 2003 on

State Finances

The maximum limit of national budget

debt is 60% of GDP

government estimates the state deficit in the

state budget

The government adopt the ‘deficit budget’

approach

The maximum accumulative limit of

national budget deficit is 3% of GDP


Overview of Indonesian Government Public Debt

Objectives

Fulfilling the needs of Government budget financing through debt with minimal costs at a controlled level of

risk.

Support the formation of a deep, active, and liquid domestic government debt securities market.

Support development financing needs through Government guarantees by taking into account fiscal

sustainability.

Debt Application System

DMFAS (Debt Management and Financial Analysis System)

Financing Management System which includes recording of Debt (Loans and debt securities), Grants, and

Government Guarantees.

SPAN (Sistem Perbendaharaan dan Anggaran Negara)

Integrated Financial Information Management System (IFMIS). Including the entire process of managing

state finances, from budgeting, budget execution, to financial reporting.


Trend of Government Debt 2013 – 2018

783.20

849.70 835.90

932.60

1,015.30 1,024.60

194.9 209.7 229.4

263.9 298.4 308.4

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

2013 2014 2015 2016 2017 2018*

GDP & Central Government Debt (Billion USD)

GDP (Billion USD) Central Government Debt

24.9% 24.7%

27.4%28.3%

29.4%30.1%

2.2% 2.1% 2.6% 2.5% 2.5%1.8%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2013 2014 2015 2016 2017 2018*

Debt to GDP & Deficit to GDP

Debt to GDP Ratio Deficit to GDP Ratio


The Composition of Government Debt


Primary Balance

Primary balance is government

net borrowing or net lending,

excluding interest payments on

consolidated government

liabilities.

The nominal of primary balance

and the percentage of primary

balance to GDP was

continuously improve since 2015

to 2018 (from minus 1,24% to

minus 0,05%).


Government Debt Measurement Risk Indicators

The debt risk indicator is a description of debt sustainability assessment based on

several ratios related to financing, namely:

Variable Rate Ratio: the portion of debt that has a variable interest rate on

total debt position.

FX Debt to GDP Ratio: portion of debt with foreign currency debt to GDP;

FX Debt to total debt ratio: portion of debt with foreign currency debt to

total debt position.

Average Time to Maturity (ATM): weighted average debt maturity; Debt

Maturity in 1/3/5 year: the portion of debt due in 1/3/5 of the total

outstanding debt.


Debt Risk Indicators

9.79.8

9.4

9.1

8.7

8.4

7.5

8

8.5

9

9.5

10

2013 2014 2015 2016 2017 Dec 2018

Average Time To Maturity (in years)


Debt Risk Indicators


Investment Grade of Indonesia

The investment climate in Indonesia continues to

increase in the last 10 years.

This is in line with improving the performance of

Indonesia's credit rating provided by several rating

agencies include Standard and Poors (S&P), Fitch,

Moody's, Rating and Investment Information (R&I),

Japan Credit Rating Agency (JCR), as well as the

results of Country Risk Classification (CRC)

assessment conducted by the Organization for

Economic Co-operation and Development (OECD).

The increase in credit rating performance shows

that increasing confidence of foreign investors to

invest in Indonesia.


The Role of SAI Indonesia (BPK) in Government Debt Auditing

Financial Audit

Since 2005, BPK have been conducted audit on the government debt annually, as

part of audit of central government financial statement.

The audit also covers the assessment of government’s internal control and

compliance to regulation in managing public finance, audit on foreign loans, audit on

foreign debt management and audit on the process for determining Government

Securities coupons.

Performance Audit

BPK has conducted performance audit on the effectiveness of public debt management

towards fiscal sustainability government in 2012 – 2013.


Examples of Public Debt Audit Findings

Related to Internal Control System:

Weaknesses in control of accrual interest debt calculation

and registration of negative notice of disbursement;

Insufficient system and verification process in

management of calculation of interest debt calculation;

Inadequate stipulations concerning transactions using

foreign currencies in the context of foreign financing

receipts;

Recording difference due to weaknesses in the system;

Insufficient accounting policies;

Some accounting policies are not in accordance with the

government accounting standard;

Balance confirmation has not been conducted optimally.

Related to Compliance with Laws &

Regulations:

Low realization of foreign loans withdrawal;

The implementation of the outstanding

confirmation procedure has not been optimal;

The monitoring of contingency obligations for

government guarantees for some projects has

not been conducted properly.

Repeated Audit Findings

Balance Confirmation has

not been conducted

optimally (2012, 2013)

Inadequate

Accounting Policies

(2013, 2015, 2017)

Recording

Difference

(2012, 2013, 2014)

Additional Cost for

Non-Compliance

(2012, 2013, 2014)


The Recommendations

1. Balance Confirmation

Conduct and monitor the reconciliation of foreign debt in an orderly manner and follow-up

on the results of the reconciliation.

2. Inadequate Accounting Policies

Establish the accounting policies or improve the information systems regarding the issues.

3. Recording Difference

Improving and synchronizing arrangements/regulations/accounting treatment for recording

the related issues.

4. Additional Cost for Non-Compliance

Coordinate actively and scheduled with ministries and institutions specifically related to

foreign loans experiencing problems.

Other Audit Findings & Recommendations

Weaknesses in Control of Accrual Interest Debt Calculation and Recording of

Negative Notice of Disbursement (2012)

Recommendations:

Arranging the Standard Operating Procedure regarding the issue.

Low Realization on Loan Withdrawals causing inefficiency and Loans exceeding

the Closing Date but on Active Status that Cause State Loss (2012)

Recommendations:

Improve monitoring of follow-up actions from related parties and make an analysis by classifying the costs arising from foreign loans that have closed dates to further make policies based on the analysis.

Other Audit Findings & Recommendations

Monitoring and Evaluation of the Implementation of Activities / Projects Financed

by Loans and Obligations Has Not Optimally Encouraged Timely Implementation

(2017)

Recommendations:

Memorandum of Understanding among related parties regarding the process ofmonitoring and evaluating loans; and develop a Loan Monitoring System (LMS)information system for monitoring and evaluating the results of theimplementation of activities/projects financed by obligations that reflect theprogress of the implementation of each activity/project.

Foreign Loan Withdrawals Are Not Supported With Budget Allocation Documents

So Debt Additions Cannot Be Recorded as Expenditures and Financing (2012)

Recommendations:

Develop a system of planning and budgeting for the withdrawal of foreign loansthat accommodates issuance of the previous fiscal year NoD.


What’s Next?

(Some Considerations)

In conducting public debt audit, there are some considerations in Indonesian context such as:

The government policy to mitigate the interest rate risk and exchange rate risk through

hedging mechanism.

The government policy to manage Primary Balance so that Debt Sustainability is

maintained in the long run.

Sovereign Asset Liability Management (ALM) policy in order to investigate whether Long-

term debt finances long-term projects e.g. infrastructure projects (matching maturity)

Management of creative financing used by the government such as the issuance of

Government Shariah Securities and retail debt securities.


Conclusion

Public debt management in Indonesia is gradually improving from year to year;

Auditors should be equipped with knowledge on macroeconomics and fiscal policy;

Training on public debt is necessary before conducting public debt audit;

Auditor should be aware regarding creative financing conducted by government;

SAI should regularly audit public debt to monitor the resilience of government fiscal

sustainability.
