#1BHINNEKA TUNGGAL IRA Republic of Indonesia Strengthening Policy Synergy to Maintain Stability and Accelerate Recovery amid Heightened Global Uncertainty September 2022#2About Investor Relations Unit of the Republic of Indonesia Investor Relations Unit (IRU) of the Republic of Indonesia has been established as a joint effort between Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia since 2005. The main objective of IRU is to actively communicate Indonesian economic policy and to address concerns of investors, especially financial market investors. As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is administered by International Department of Bank Indonesia. However, day-to-day activities of IRU are supported by all relevant government agencies, among others: Bank Indonesia, Ministry of Finance, Coordinating Ministry for Economic Affairs, Ministry of Investment, Financial Services Authority, Ministry of State-Owned Enterprises, and The Committee for Acceleration of Priority Infrastructure Delivery. IRU also convenes an investor conference call on a monthly basis, answers questions through email, telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices. Published by Investor Relations Unit - Republic of Indonesia Website: http://www.bi.go.id/en/iru/default.aspx Contact: Rosita Dewi (International Department - Bank Indonesia, Ph.: +6221 2981 8232) Thasya Pauline (Deputy Ministry for Macroeconomic and Finance Coordinator - Coordinating Ministry for Economic Affairs, Ph. +6221 352 1843) Putri Rizki Yulianti (Fiscal Policy Office - Ministry of Finance, Ph.: +6221 345 0012) Subhan Noor (Directorate General of Budget Financing and Risk Management - Ministry of Finance, Ph.: +6221 351 0714) E-mail: [email protected] This Presentation Book also can be downloaded from: https://www.bi.go.id/en/iru/presentation/default.aspx 1#3Highlight of the Month What's New Economic Recovery Program and Its Updates ...page 5-21 Fiscal & Financing Policy Update ...page 63-92 2023 Budget ...page 75-78 Bank Indonesia Board of Meeting Decision ...page 97-98 Prudent Pandemic Management and Continued Economic Recovery Big but measured steps including a strong vaccination program Synergy between institutions nationwide Responsive and flexible Government Budget Resilient economic performance Continued National economic recovery momentum, reflected by 5.01% (yoy) economic growth in Q1-2022, endured on the back of stronger domestic demand and persistently solid exports. Affirmation of Investment Grade Sovereign Credit Rating Rating Agencies Fitch Rating MOODY'S Rating (Outlook) BBB (Stable) Baa2 (Stable) S&P Global BBB (Stable) Investment grade ratings affirmed by Fitch on 28 June 2022 recognizing macro stability and optimism on the growth prospect, as well as policy credibility in handling COVID- 19 pandemic. Sources: Fitch, Moody's, S&P 2#4Overview 1 Economic Recovery Program and Its Updates 5 Fiscal Performance and Flexibility: Strong Commitment in Maintaining Fiscal Credibility Accelerated Reforms Agenda Supported by 2 Institutional Improvement and Progressive Infrastructure Development 6 Monetary and Financial Factor: Credible Monetary Policy Track Record and Favorable Financial Sector Economic Factor: 3 Stable Growth Prospects Supported by Continued Economic Recovery Momentum 7 Commitment to Sustainability and Preserving the Environment External Factor: 4 Improved External Resilience 13#5Section 1 Economic Recovery Program and Its Updates BHINNEKA TUNGGAL IRA#6Indonesia's Economic Improvement Trend Continues GDP Growth (%YoY) PMI Markit Indonesia 60 Total Investment (DDI+FDI) Rp Trillion 10 51.7 55 Expansion >50 350 5 50 300 0 250 45 200 -5 40 150 -10 35 100 Q1Q2Q3Q4Q1Q2 Q3 Q4Q1Q2Q3Q4Q1Q2 Contraction <50 50 30 2019 2020 2021 2022 0 25 Total GDP Household Consumption GFCF Current Account of GDP (%) 80.00 60.00 2.00 1.10 40.00 1.00 20.00 0.00 0.00 -1.00 -2.00 ん -20.00 -40.00 -3.00 -4.00 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2018 2019 2020 2021 2022 -60.00 Sources: CEIC, BI, BPS, Bloomberg Mar-1 Trade Balance (Billion USD) 10.00 5.76 8.00 12000 6.00 12500 13000 4.00 13500 2.00 14000 14500 0.00 15000 15500 -2.00 16000 -4.00 16500 17000 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 2019 2020 2021 2022 Balance (Billion USD) Export-g (% YoY)-rhs Import-g (% YoY)-rhs CCI & Retail Sales 5,4. 150 20.0 302.20 10.0 130 0.0 110 124,7 -10.0 90 -20.0 10 70 -30.0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2019 2020 2021 2022 Consumer Confidence Index (CCI) Retail Sales-g (rhs) The Indonesian Rupiah and JCI 7128 6000 7500 4000 7000 2000 6500 0 -2000 6000 -4000 5500 -6000 5000 -8000 15.128 4500 -10000 4000 1/16/2020 5/16/2020 9/16/2020 1/16/2021 5/16/2021 9/16/2021 1/16/2022 5/16/2022 IDR/USD JCI-rhs Net Capital flow (Million USD) 1/1/2021 3/1/2021 5/1/2021 7/1/2021 9/1/2021 11/1/2021 1/1/2022 3/1/2022 5/1/2022 7/1/2022 9/1/2022 Equity Flow (ytd) Bond Flow (ytd) Total 5#7Government and Society Preparation to Live With COVID-19 COVID-19 is a new disease that needs to be faced and prepared for its sustainable handling Strategy on COVID-19 control and prevention Intense intersectoral collaborations under the supervision of President Joko Widodo and coordination of the committee of national economic recovery and COVID-19 control (KPCPEN) Case detection: Intensifying screening and epidemiological tests; Contact tracing; Genomic surveillance; Screening at country entry and exit points Therapeutics: conversion of 30-40% of hospital beds for COVID-19, ensuring adequate logistics and human resources, tightening criteria of hospital admission, establishing a center for isolation Vaccination: allocate more vaccines for high-risk areas, the establishment of vaccination centers, vaccination certificates as entry requirement of the public regions; rate acceleration on elderly and people with comorbidities Public health measures: micro-scale of social activity restriction, implementation of digital tech in public health. measures Updates People are allowed not to wear masks in open spaces from 18 May 2022. Mandatory mask use only for indoor activities and crowded areas Domestic and international travelers do not require a PCR test and quarantine if they have been vaccinated at least two doses but still have a temperature check. People were allowed to go home/ "mudik" for Eid al-Fitr Only people with moderate and severe COVID-19 symptoms are suggested to be hospitalized Medicine package delivery for COVID-19 confirmed positive individuals with asymptomatic or mild symptoms based on NAR database Source: Coordinating Ministry for Economic Affairs 6#8Covid-19 Vaccination Plan in 2022 Primary Vaccine Program (198.2 million doses) Primary and Advanced Program Vaccines (378,1 million doses) 1. Spillover 2021 2. Cohort 12 years 3. 6-11 yrs Direct appointment of the provider business entity 4. Elderly Implementation of Procurement by the Ministry of Health Cooperation with international institutions/agencies Vaccination location: Health Center, Government Hospital Government Program Vaccine Booster* (179.9 million doses) Assignment to State- Owned Enterprises (BioFarma) Notes: *) Booster half dose The third dose (booster) COVID-19 vaccination program begins on January 12, 2022. The booster vaccine will be given to people over 18 who have received the second dose of the vaccine more than six months ago. • This program is prioritized for districts/cities with 70% vaccination achievement for dose 1 and 60% for dose 2. • The type of vaccine to be used as a booster awaits recommendations from ITAGI (Indonesian Technical Advisory Group on Immunization) and BPOM. Source: Coordinating Ministry for Economic Affairs 5. Adult Λ Vaccine Booster 7#9Progress of Vaccination Implementation Vaccination has been carried out since January 2021. As of September 27, 2022, the 1st vaccination dose was 204,5 million (87.15%), the 2nd dose vaccination was 171,1 million (72.91%), the 3rd dose vaccination (booster) was 63.2 million (26.9%) Coverage of Covid Vaccination Doses 1, 2 and 3 Vaccination Target TOTAL | Vaccination Progress 234,666,020 A HEALTH WORKER Vaccination 1 Vaccination 2 Vaccination 3 2,041,408 1 1,468,764 (138.99%) 1,986,881 (135.28%) PUBLIC OFFICERS Vaccination 1 Vaccination 2 18,479,092 2 17,327,167 (106.65%) 16,746,434 (96.65%) Vaccination 1 Vaccination 2 ELDERLY 18,392,365 3 21,553,118 (85.34%) 14,870,134 (68.99%) 1,752,859 (119,34%) Vaccination 3 9,009,163 (51.99%) Vaccination 3 6,688,711 (31,03%) Gotong Royong Vaccine: Vaccination 1 = 1,170,400 (7.8%) Vaccination 2 = 1,109,642 (7.4%) Vaccination 3 = 649,764 (4.33%) 2nd Doses: 72.91% 1st Doses: 86.633% Mi COMMUNITY & VULNERABLE Vaccination 1 Vaccination 2 Vaccination 3 117,112,603 | 96,780,012 43,967,085 141,211,181 (82.93%) (68.54%) (31.14%) Vaccination 1 Vaccination 2 Vaccination 3 TEENAGER 3rd Doses: 26.9 6% 25,627,642 5 26,705,490 (95.96%) 22,087,660 (82.71%) 692,651 (2.59%) As of 27 September 2022 Total Target (1+2+3+4+5) 234,666,809 Source: Coordinating Ministry for Economic Affairs (87.15%) 204,502,073 171,103,992 (72.91%) | 63,266,808 (26.96%) 8#10Community Activity Restriction (PPKM) as a Support for Government Vaccination Program The purpose of PPKM is to suppress positive cases of covid-19 as a precondition for success for handling Covid-19 and for national economic recovery. As of April 26th, there is no district or city at level 4. - Large Scale Social Restriction (PSBB) April 2020 PSBB Transition Assessment of the Covid-19 Pandemic Situation Level transmission level response capacity pandemic situation level October 2020 O Community Activities Restriction Level 0 Level 1 Level 2 Level 3 Level 4 Enforcement (PPKM) 11 Jan 8 Feb 2021 Micro-Scale PPKM Situation 9 Feb 2 Jul 2021 without not occur but The Emergency PPKM local 3 Jul 20 Jul 2021 transmis sion a situation where transmission does there are limitations to preventing transmission situations with low community incidence a community transmission situation with limited response capacity and a risk of inadequate health services transmission with insufficient response capacity uncontrolled PPKM Level 1 to 4 21 Jul 2021 - 3 Oct 2022 In line with the implementation of PPKM, government support for the community and small businesses is strengthened through social protection assistance and economic assistance for MSMEs Source: Coordinating Ministry for Economic Affairs 6#11National Economic Recovery (PEN) Program Is Directed For Jobs-stimulating Recovery 2020 2022 ENABLING FACTOR Job Stimulating Recovery: Health System || || Extraordinary Measures. ☐ Handling Covid ☐ Social Protection ☐ Business Protection ☐ Handling Covid ☐ Vaccination Program ☐ Social Protection Business Protection Strengthening || (Vaccinations, 3T and 5M Health Protocols) Financial System Support Structural Reform || Improved Intermediary Job Creation Law HPP Law Role IL 2021 Surviving and Facilitating Recovery: ☐ Handling Covid ☐ Vaccination Program □ Social Protection ☐ Business Protection Source: Coordinating Ministry for Economic Affairs Direct Support to the Community Job Creation Labor Intensive Program Strengthening Economic Structure and Competitiveness, for Medium-Long-Term Growth PreEmployement Card Social Protection • ΡΚΗ BLT Village Fund Grocery Card Stimulasi Kinerja UMKM dan Koperasi Targeted Tax Incentives Business Incentive Business Ease Support Financing Support . KUR Interest Subsidy • Credit Guarantee Strengthening Expenditure Side Strengthening Production Side EMPLOYMENT GDP GROWTH STABILITY 10#12National Economic Recovery Program Will Continue In 2022 To Anticipate The Expansion Of The Impact Of Covid-19 During 2021 (Reached IDR658,6 T or 88,4% of IDR744.77 T) HEALTH Budget IDR.214.96 T Realization IDR.198.5T (78.8%) SOCIAL PROTECTION Budget IDR.186.64 T Realization IDR.171.0T (91,6%) SUPPORT FOR MSME AND CORPORTATION Budget IDR.162.40 T 2022 Potential Risks of the Increased of COVID-19 Impact in 2022 include: Increased testing, tracing, dan treatment Increased Patient Claims as the number of cases increases Expansion of community protection Realization IDR.116.2T (71,5%) TOTAL: PRIORITY PROGRAM Budget IDR.117.94 T Realization IDR.105.4T (89,3%) BUSINESS INCENTIVE Budget IDR.62.83 T Realization IDR. 67.7T (107,7%) IDR455,6 T Realization: 47,2 % as of September, 16 2022 SOCIAL PROTECTION: IDR 154.76 T Realization: 64,6 % The allocation of the Program has the potential to increase in line with the development of handling COVID-19 HEALTH: IDR 122.54 T Realization: 31,4 % STRENGTHENING ECONOMIC RECOVERY: IDR 178.32 T Realization: 42,8 % 1#13National Economic Recovery (NER) Program in 2022 With intensive monitoring, the current allocation reaches IDR455.62 T (Realization: IDR 214,9 T or 47.2%) as of September 16, 2022 Health Treatment ◉ Patient claims ■ ■ Health Workers Incentive Health tax incentives Village fund for handling covid IDR122.54 T (Realization: IDR38,4 T or 31.4%) Source: Coordinating Ministry for Economic Affairs ☐ Social Protection Family Hope Program (PKH) Non-cash food aid recipients (Sembako Card) ■ Cash Direct Assistance of cooking oil ☐ Village Fund Direct Cash Assistance ■ Cash Assistance to Street Vendors, Stalls, and Fishermen (BT-PKLWN) Program ☐ Pre-Employment Card IDR154.76 T (Realization: IDR 100 T or 64.6%) Strengthening Economic Recovery ■ Tourism program ICT MSME Support ■ Tax incentives ■ Food Security IDR178.3 T (Realization: IDR 76,4 T or 42.8%) 12#14Government And Society Prepare To Live With Covid-19 COVID-19 is a new disease that needs to be faced and prepared for its sustainable handling Burden of Disease in Indonesia (2019) Living With Covid-19 16.51 million 1. 2. 2022 3. Health Monitor independently; Testing/screening is done by yourself; Managing your own health (knowing when to go to the hospital, when to go to the doctor, also the type of Cardiovascular diseases Cancers Diabetes and kidney diseases Musculoskeletal disorders Respiratory infections and TB Digestive diseases Other NCDs Neonatal disorders Mental disorders Respiratory diseases Neurological disorders Enteric infections Transport injuries Unintentional injuries Skin diseases 6.76 million 5.52 million 5.23 million 4.56 million 4.04 million 3.99 million 3.91 million 3.38 million 3.18 million 12.76 million 2.61 million 2.43 million 2.29 million 1.71 million Nutritional deficiencies 1.62 million Other infectious diseases 1.34 million Malaria & neglected tropical diseases 934,929.67 HIV/AIDS and STIs 775,832 24 Substance use disorders 382,851.19 371,921.93 + COVID-19 is an additional burden of disease that needs to be taken into account and a reference for the health system going forward Self-harm Maternal disorders 326,556 16 Interpersonal violence 228,972.97 Natural disasters | 93,561.62 Conflict and terrorism 21,562.49 Government Response: ○ Creating a Countermeasure Program Providing health facilities and medicine capacity Ensure Vaccine Availability Community readiness: 0 2 million O Living with COVID-19 (activities with vigilance) o Managing individual risk factors medicine you need), including a healthy lifestyle and strengthening the immune system. 4. The community is given a guideline for the protocol for daily living with Covid-19, as people live with the previous disease which is shown in the graph below. IN THE NEW NORMAL LIFE, COVID 19 IS INCLUDED IN THE CATEGORY OF RESPIRATORY INFECTIONS, INCLUDING INFLUENS AND OTHER RESPIRATORY DISEASES Sources: Burden of Disease - Our World in Data Source: Coordinating Ministry for Economic Affairs 13#15Increasing The Productivity And Competence Of The Workforce Through The Pre-Employment Card Program Number of Registration >92 Millions Registrants on the Pre-Employment Card site from ALL Regencies and Cities 34 Provinces 514 Regent/City Statistics & Data Recipient Pre- Employment untill 2021 Employment Statistic of Recipients 2022 2.898.137 Rp5,35 Triliun Total Pre-Employment Card Recipients (Batch 23-44**) Incentives has distributes (Batch 1-22) Pre-Employment Card Ecosystem 8 Educational 11.440.629 Pre Card . 6 Payment Method: • Recipient(Batch 1-22) BNI, BCA, GOPAY, DANA, LinkAja, OVO Rp27,74 Triliun Incentives has distributes (Batch 1- • 22) 6 Digital Platform: 51%* SISNAKER, Pijar Mahir, Tokopedia, Karier.mu, Bukalapak Pintaria, 49%* 87% Unemployment 57% Between 18-35* Senior High 68% School or more* From those who work (Employees/Labourer 74% s/Freelance Employee) is in the Informal Sector Sumber: Pre-Employment Card Management, September 22, 2022 • Institution: Universitas Indonesia, Universitas Atma Jaya, Indonesia Mengajar, UGM, UNAIR, Institut Pertanian Bogor, UMM dan Universitas NU Indonesia (UNUSIA) 185 Training Course: 1.083 training course, example: Skill Academy, Baking World, Baba Studio, Cakap, Cariilmu, Arkademi Job Portal: Jobs.id, JobStreet.com, Top Karir, karir.com 14#16National Economic Recovery Strategy Through Import Substitution Program (35% Reduction) in 2022 • • சச AA INDUSTRIAL CONDITIONS Require to deepen Industrial Structure Necessary to be independent on raw materials and production Unsupportive regulations and incentives The P3DN Program is not yet optimal 7 SECTORS FOCUS Food and Beverage Textiles and Clothing Import Reduction STRATEGIC STEPS through Import Substitution in Industries with Large Import Value Encouraging the Deepening of Industrial Structure Increasing Production Utilisation of All Manufacturing Industry Sectors Increase in Investment and Absorption of New Workers 35% IMPORT SUBSTITUTION PROGRAM BY 2020 Source: Ministry of Industry Automotive Chemical Electronic Utilisation 60% (2020) Utilisation Utilisation 75% 85% (2021) (2022) Pharmacy Medical Devices • Absorption of workers affected by layoffs Increased domestic spending capacity • Increase in the export market 15#17Fiscal Incentives Policy to Boost the Economy The government facilitates fiscal incentives to create a conducive investment climate, especially for industry players. Through increased investment, it is hoped that it can strengthen the domestic industrial structure TAX HOLIDAY TAX ALLOWANCE INVESTMENT ALLOWANCE SUPER DEDUCTION TAX • The criteria are new investment, taxpayers including pioneer industries, and income received from the main business activities carried out. Pioneer industries are defined as industries that have broad linkages, provide added value and high externalities, introduce new technologies, and have strategic value for the national economy. • There are 18 industrial sectors that fall within the scope of pioneer industries Updated: Jan 1-July 25 2022 15 Taxpayers; 4 countries investors Investment plan of IDR 107,9 trillion Business locations in 6 provinces • • To increase direct investment activities for certain business fields and/or in certain areas. • The facilities include a reduction in net income of 30% of the total investment for six years, accelerated depreciation and amortization, imposition of income tax on dividends paid to foreign tax subjects of 10% or lower and compensation for losses of up to 10 years. • The criteria are having a high investment value or for export, a large absorption of labor; or have a high local content. • To encourage investment in industries, labor-intensive support programs for job creation and absorption of Indonesian workers. • Incentives in the form of facilities to reduce net income by up to 60% for labor-intensive sectors • There are 45 labor- intensive industrial sectors and employ an average of 300 workers in 1 tax year. Super Deduction Vocational • • Engaging industry in vocational activities to provide knowledge and encourage the transfer of knowledge • A maximum reduction of 200% gross income from costs in the context of providing work practice, apprenticeship, and / or learning activities R & D Super Deduction Increase the role of industry fostering innovation and the use of the latest technology in the production process • Maximum gross income deduction of 300% over R&D costs carried out in Indonesia Source: Coordinating Ministry for Economic Affairs Updated: Jan 1-July 25 2022 17 Agreement, 14 Taxpayers; Investment plan of IDR 21,6 trillion Updated: Jan 1-July 25 2022 ➤ 2 Taxpayers; 2 Activities Investment plan of IDR 365,3 billion Updated: Jan 1-July 25 2022 138 Agreement (Vocational) ➤ R&D Est. Cost IDR 97,5 billion 13 Activities; 8 Taxpayers 16#18Government Support for MSMEs During the Covid-19 Pandemic In the form of relaxation of asset quality assessments, postponement of principal & interest subsidies, low-interest working capital loans guaranteed by Askrindo and Jamkrindo, tax incentives for MSMEs borne by the government, and Productive Presidential Assistance for Micro Enterprises MSMES CREDIT RESTRUCTURING WORKING CAPITAL CREDIT 1 ASSET QUALITY ASSESSMENT 2 POSTPONEMENT OF PRINCIPAL & INTEREST SUBSIDIES 3 According to POJK KUR Super Mikro: Loan up to IDR 10 million No. 11/POJK.03/2020 & • 14/POJK.05/2020 Interest subsidy will be 19% consist of additional interest subsidy 6% and regular interest subsidy 13%, debtors pays 0% interest from Aug - Dec 2020. 4 KUR MKM (SMEs): Asset Quality LOW INTEREST IDR30 Trillion Government Placement of Funds at Bank Himbara Arrangement: ≤ • 10 Loans IDR billion can be based only on the accuracy of principal interest payments Restructurisation: The credit quality for affected debtors is determined to be current restructuring since The restructuring is carried out without a ceiling limit type of financing Loan up to IDR 10 million up to IDR 500 million • • Postponement of installments and 6% additional interest subsidy for the period from Apr-Dec 2020 to 0%. KUR MSME Credit, non-KUR: Loan > IDR 500 million up to IDR 10 billion Postponement of installments and interest subsidies 3% for the first 3 months and 2% for the next 3 months 5 UMi, Mekaar, Pegadaian (Pawnshop) Postponement of principal installments and interest subsidies for 6 months from Apr-Sep 2020 Fintech Loan, Co-op, Farmers, LPDB, LPMUKP, UMKM PEMDA Relaxation is given a 6% interest subsidy for 6 months Based on Coordination Meeting held by Financing Policy Committee for MSME on December 28, 2020, KUR implementation in 2021 are as follows: Additional interest subsidy 3% for 6 months, debtors pays 3% interest. Increase the ceiling of KUR in 2021 to IDR 253 trillion. GUARANTEE Government support in the form of guarantees by Askrindo and Jamkrindo OTHER SUPPORT Income Tax for MSMEs is borne by Government MSMEs receive a final PPh rate of 0.5% (PP 23/2018) borne by the government (DTP). MICRO BUSINESS PRODUCTIVE 6 PRESIDENT ASSISTANCE Direct assistance to 13 million Micro Enterprises and 1 million street vendors in the amount of IDR 1.2 million per recipient Source: Coordinating Ministry for Economic Affairs 17#19The Pre-Employment Card Program to Increase Access to Finance for Entrepreneurs and SMEs K Kredit Usaha Rakyal R People's Business Credit (KUR) is a credit/financing for working capital and/or investment to a productive and feasible 1 individual, business entity, and/or business group debtor that does not have additional collateral or does not have sufficient collateral. KUR is entirely sourced from the financial institution fund that distributed KUR loans. KUR Interest Rate Year 2016-2017 9% Year 2018-2019 7% Year 2020-2022 6% Year 2014 22% Micro KUR 13% Retail KUR Year 2007 24% Micro KUR Year 2015 12% Low KUR interest amounting to 6% effective annually. Easy requirements for KUR additional collateral. . 2 " . . 2022 KUR POLICY Increase of KUR ceiling to Rp373,17 Trillion 2022 KUR ceiling was initially stipulated at Rp250 trillion. Coordination Meeting of Committee of Financing Policy for MSMEs on 29 December 2021 has decided to add 2022 KUR ceiling from Rp250 trillion to Rp373.17 trillion and will be evaluated on the 1st semester of 2022. KUR Policy Relaxation during Covid-19 Period Small KUR is without limitation in the loan ceiling accumulation until 31 December 2022 Postponement of the production sector target until 31 December 2022 or by the consideration of the Committee of Financing Policy for MSMES • Follow-up incentive provision in the form of KUR restructuring extension Provision of administrative relaxation for prospective KUR debtor during Covid-19 pandemic period based on the objective assessment of KUR Distributor Provision of additional KUR interest subsidy of 3% until 31 December 2022 3 Change of KUR Policy to Expand and Increase KUR Distribution Small KUR and special KUR over Rp100 million is following the policy/assessment of KUR Distributor. Additional collateral is not required for supermicro- KUR, micro-KUR, special KUR up to Rp100 million, and Indonesian Migrant Worker (PMI) placement KUR. Source: Coordinating Ministry for Economic Affairs, as of January 10, 2021 Change of Micro KUR ceiling (without additional collateral), starting from Rp10 million to Rp50 million to be beginning from Rp10 million to Rp100 million. Change of Special/Cluster KUR without KUR ceiling accumulation limitation for the production sector (non-trade) and interest subsidy by KUR type Increase PMI KUR ceiling, starting from Rp25 million to starting from Rp100 million, withdrawal (KUR disbursement) by the need of PMI and simplification of KUR distribution. Reduction of KUR interest subsidy/margin subsidy for Super Micro KUR by 1% to be amounting to 12%; Micro KUR is reduced by 0,5% to 10%; Small KUR interest subsidy remains at 5,5%, and PMI Placement KUR interest subsidy is reduced by 0,5% to 13,5%. 281.9 198.6 140.1 22.8 KUR 30 Distribution 94.0 100 96.7 110 120.3 120 140 190 285 (IDR Trillion) 2015 2016 2017 Target 2018 2019 2020 2021 Realization 18#20Digitization of MSMES: MSMEs Level Up STRENGTHENING THE MSME ECOSYSTEM STRENGTHENING E-COMMERCE ECOSYSTEMS 100 84.8 80 60 35.2 34.4 84,8% MSMEs have 30.4 40 returned to 20 8.1 7.1 normal operations 0 Berjalan normal Berjalan terbatas Belum beroperasi compared to 2020 2020 maret-april 2021 (Survey of 505 MSMEs) % Tax Sertification (Source: Mandiri Institute Survey, June 2021) During the pandemic, MSMEs used various marketplace networks to sell their products, 40% of MSMEs used social media, and the rest used instant messaging (38%), e- commerce (13%), and ride-hailing (5%). (Source: Mandiri Institute, 30 June 2021) MSME Market Access and Empowerment Support Pahlawan Digital BANGGA BUATAN INDONESIA PLUT-KUMKM Permissions Sector Business Climate e-commerce Payment Logistic ☑ Market Access Financing Personal data Protection DIGITIZATION MSME Control informatics Training Accompaniment System Operation and Electronic Transaction Raw Material Access Digital Infrastructure Source: Kominfo, 2021. PaDi UMKI Pas Digital UMKM *sparc campus GRIS QR Code Standar Pembayaran Nasional ASEAN UMKM UNDEALLY digiku Digital Kredit UMKM E-LEARNING KUMKH Source: Coordinating Ministry for Economic Affairs ecatalogue 8 out of 10 UMKM get to know finance/ banking 84% Get help during the pandemic 70% LKPP Experiencing an increase transactions per day in products 71% Get to know digital finance Source: OVO and CORE Indonesia Survey (2021) 19#21Indonesian Digital Economy Development Framework Concept (2021-2030) The contribution of the Internet Economy reaches IDR 2,711 trillion Increase Efficiency & Productivity (Accelerate) Accelerating the digitization of the economic sector VISION Become a Digital Economy Powerhouse to Realize Inclusive, Connected and Sustainable Economic Growth POTENTIAL ACHIEVEMENTS 2030 The e-Commerce market reaches IDR 35 Million MSMEs digitized 1,815 trillion Creating Jobs GOAL Encouraging Innovation STRATEGY (Create) Creating diverse and equitable digital economic opportunities 250 million digital literacy Creating Inclusivity 2 times the worker productivity ratio vs. cost Achieving Digital Economy Sovereignty (Encourage) Encouraging cross- sector/stakeholder coordination MAIN PILLAR 3 4 1 2 5 6 Infrastructure Human Resources Research, innovation & Business Development Policies/Regulation S Data Governance & Cybersecurity Funding & Investment Digital Economy Development Program PRIORITY Agriculture & Fisheries Industry 4.0 Trade Source: Coordinating Ministry for Economic Affairs Education Finance Health tourism and creative MSME economy 20 20#22Indonesia G20 Presidency 2022: a Snapshot Through G20 Presidency, Indonesia will continue to take the lead on ensuring equitable access to COVID-19 vaccines, promoting sustainable and inclusive economic development through MSMEs participation and digital economy Indonesia G20 Presidency Theme "RECOVER TOGETHER, RECOVER STRONGER" Main Topics of Indonesia's G20 Presidency GLOBAL HEALTH ARCHITECTURE DIGITAL TRANSFORMATION SUSTAINABLE ENERGY TRANSITION G20 Summit 429 39 Delegation Countries/ International Organizations 20 Main Ministerial Meeting 4.581 Ministerial Meeting Sherpa Meeting Working Group Meeting 17 1.212 56 Meeting WG Meeting + Side Events 90 Delegation Delegation WORKSTREAM 8.330 Delegation Delegation ESTIMATION OF ECONOMIC BENEFITS FOR INDONESIA Engagement Group Meeting Engagement Group Meeting 6.436 SHERPA TRACK Through the sherpa tracks, 11 working groups, 1 initiative group, and 10 engagement groups meets to discuss and provides recommendation on the G20 agenda and priorities FINANCE TRACK As part of the G20 process, a particular place is reserved for the "Finance Track", which includes the meetings held among Finance and Economy Ministers, Central Bank Governors, Vice Ministers and Sherpas (negotiators) designated by the respective economic ministries, mainly focuses on economic, financial, monetary and tax issues. Source: Coordinating Ministry for Economic Affairs Rp1,7T Rp7,4T 33k 1,5 - 2x Increasing Domestic Consumption Adding National GDP Involving MSMEs and Adding Labor Absorption Economic benefits compared to the 2018 AM IMF-WB event 21 227#23Section 2 Accelerated Reforms Agenda Supported by Institutional Improvement and Progressive Infrastructure Development BHINNEKA TUNGGAL IRA#24Rank 2007-2008 2008-2009 Improving Global Perception ...with recent improvements on governance effectiveness Global Competitiveness Index¹ 2009-2010 Higher rank is better 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018* 2019* 20 30 40 50 60 70 80 90 Worldwide Governance Indicators² 36 70 Higher rank is better 41 45 60 50 50 India Indonesia Philippines Bulgaria Corruption Perception Index³ 55 50 50 45 40 40 35 7 40 30 *New Concepts by using the Global Competitiveness index 4.0 which captures the determinants of long- term growth. 20 10 Colombia 0 2010 2011 2012 2013 2014 Voice and Accountability Government Effectiveness 48 46 ཆེ པེ ཆེ 47 Rule of Law Higher score is better 30 2012 2013 2014 2015 2016 2017 2018 2019 2020 • Indonesia India Philippines Bulgaria Colombia 39 34 2015 2016 2017 2018 2019 2020 Political Stability/Absence of Violence Regulatory Quality Control of Corruption 1. Source: World Economic Forum - The Global Competitiveness Report 2019; 2. Source: World Bank - The Worldwide Governance Indicators 2021 Update; 3. Source: Transparency International - Corruption Perceptions Index 2021 Report 65 55 52 42 39 28 23 23#25A Well Maintained of Indonesia's Sovereign Credit Rating in The Midst of Economic Recovery BBB+ BBB BBB Investment Grade BB+ BB BB- BED Fitch Ratings R&I JCRA S&P Fitch Moody's BBB / Stable June 2022, Rating Affirmed at BBB/Stable "Indonesia's rating balances a favorable medium-term growth outlook and a still low government debt/GDP ratio against government revenue, sovereign external debt to GDP and structural features such as governance indicators and GDP per capita that are weak compared with that of 'BBB' category peers. B+ 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20ZZ S&P Global Ratings BBB / Stable April 2022, Outlook Revised To Stable; BBB Ratings Affirmed "The stable outlook reflects our expectation that Indonesia's economic recovery will continue over the next two years, supporting the government's continued fiscal consolidation efforts. We expect the pace of the recovery to accelerate further this year. MOODY'S Baa2 / Stable February 2022, Rating Affirmed at Baa2/Stable "The affirmation of the rating is supported by continued economic resiliency and Moody's expectations that monetary and macroeconomic policy effectiveness will be maintained, containing risks as global interest rates rise. Moody's expects economic activity to revert to its historical average in 2023, with growth sustaining at those rates thereafter." BBB+ / Stable R&I July 2022, Rating Affirmed at BBB+/Stable BBB+ / Stable JCR "In R&l view, Indonesia's economy that plunged in 2020 will likely return to a pre- coronavirus growth level in one to two years. The government's structural reform efforts are also expected to boost growth potential in the medium to long term. Despite the pressure on the fiscal side caused by policy responses, the government debt ratio remains relatively low. The economic resilience to external shocks is maintained thanks to flexible policy responses by the government and the central bank and ample foreign reserves". July 2022, Rating Affirmed at BBB+/Stable "The ratings mainly reflect the country's solid domestic demand-led economic growth potential, restrained public debt and resilience to external shocks supported by accumulation of foreign exchange reserves. JCR holds that the debt will gradually decrease as the fiscal balance improves mainly increased revenue from economic growth and higher commodity prices". 24 124#26Structural Reform Towards "Indonesia Maju 2045" and Out of the Middle-Income Trap GDP 2019 RANKING #16 *World Bank Making Indonesia 4.0 Job Creation Law RANKING TOP 10 INDONESIA MAJU 2045 WORLD GDP 2035 2036 EXIT MIDDLE 2030 INCOME TRAP* O 2018 2019 2025 BONUS DEMOGRAPHY 2020 2021-2022 ELECTION 2024 Income per capita : US$ 3.911,7 Entering the Political Year REFORM NEW LEADER "New Normal" 2 Years 3 Years 5 Years Income per capita: STIMULUS RECOVERY 2022 US$ 4.174,5 G Income per capita : US$ 6,305* Income per capita : US$ 8,804* Income per capita : US$ 12,233* PRE COVID Source: Coordinating Ministry for Economic Affairs POST *Based on the 2020-2024 National Medium Term Development Plan 25#27Medium-Term National Development Plan (RPJMN) 2020-2024 President's Vision: "The Establishment of an Advanced Sovereign, Independent and Personality Based on Mutual Cooperation". President's Missions Top 5 Presidential Priorities 7 RPJMN Development Agenda 1 Improving the Quality of the Indonesian Labour Force 1 HR Development Achieving Productive, Independent 2 and Competitive Economic Structure 3 Attaining Equitable and Prosperous 2 National Development Infrastructure Development Achieving Sustainable 4 Environmental Climate Developing Cultural Progress 3 5 Reflecting the Nation's Personality Regulation Simplification Developing a Dignified and Trustworthy 6 Legal System Free from Corruption 4 Protection of All Nations and 7 Provision of Security to All Citizens 00 Attaining Good, Effective, and Reliable Governance Economic 5 Achieving Synergy of Governmental 9 Framework with the Regional Government Simplification of Bureaucracy Transformation Strengthening Economic Resilience to Achieve Superior Economic Growth Developing More Remote Regions to Reduce Economic Gaps and Improve Equality Improvement of Quality and Competitiveness of the Labour Force Engaging in Mental Revolution and Culture Development Strengthening Infrastructure to Support Economic Development and Improve Basic Services Conservation of Environment, Supporting Climate Change, and Enhancing Disaster Resilience Enhancing Political, Legal, Defense and Stability and Transforming Public Services Source: National Development Planning Agency 26#28Indonesia's Grand Strategy in Encouraging Sustainable Economic Growth ☐ Indonesia's economic fundamentals are solid and have been able to return to pre-pandemic levels, in line with increased mobility and leading indicators that show bright prospects. □ Furthermore, the government will continue to encourage accelerated growth with various strategies to achieve sustainable growth. Current Conditions: Solid Economic Fundamentals Indonesia's economy is growing strong and has reached pre-pandemic levels Population mobility is starting to increase, in line with the controlled Covid- 19 cases ☐ Leading indicators indicate a convincing economic outlook ☐ Resilient external sector SME Grand Strategy ☐ Government and Society Prepare to L Live With COVID-19 Fiscal Policy as Shock-Absorber ☐ Price Stabilisation Omnibus Law on the Job Creation Act, including IKN development Downstreaming and industrialization of natural resources ☐ Optimization of clean energy sources and green economy Legal, social, political and economic protection for the people □ MSME'S LEVEL UP Goal Achieving Sustainable Economic Development I 27#29The Framework of Job Creation Law AL New Business Creation GREENFIELD INVESTMENT COMPANY (111> Supply Brownfield PRODUCTION Demand Business Development JOB CREATION LAW New Job Creation Welfare Creation CONSUMPTION Increased Purchasing Increased Income Power HOUSEHOLD Source: Coordinating Ministry for Economic Affairs 28 28#30Job Creation Law As A Tool For Long-term Structural Reform PROGRESS OF THE JOB CREATION LAW With the Omnibus Law method, 79 laws were revised and simplified to become the Job Creation Law (Law Number 11 2020) was promulgated on November 2, 2020 Clusters in the Job Creation Law 1. Improving the Investment Ecosystem and Business Activities Employment 2. 3. 4. Ease, Protection, and Empowerment of Cooperatives and MSME Ease of Business 5. Research and Innovation Support 6. Land Procurement 7. Economic Zone 8. Central Government Investment and Acceleration of National Strategic Derivative regulations of 54 Government Regulations/Presidential Regulations The decision of the Constitutional Court on November 25, 2021 On June 16, 2022, Law No. 13 of 2022 concerning Amendments to Law No. 12 of 2011 concerning the Establishment of Legislation The government prepares improvements to the job creation law following the decision of the Constitutional Court, which involves the technical formation of the job creation law but does not change its substance. Preparation of academic manuscripts and draft law manuscripts It has expected to be completed in 2022. Source: Coordinating Ministry for Economic Affairs . 9. Projects Implementation of Government Administration 10. Imposition of Sanctions a) Revising Law 12/2011 to accommodate the Omnibus Law method b) Change the Job Creation Law based on the revision of Law 12/2011 within two years c) Review the substances that objection to the community The subject matter in the revision includes: a) Omnibus method; b) Strengthen community involvement and meaningful participation; c) Regulatory digitalization d) Improve the technical error of writing in the draft law either that has been agreed upon or after the President receives the bill The Job Creation Law and its implementing regulations are still in effect and no material on the Law has been annulled by the Constitutional Court. Thus, the implementation of the Job Creation Law, which concerns, among others, Business Licensing and OSS, Employment including provincial and district/city minimum wages, and facilities for MSMEs, still applies. 29 29#31The Job Creation Law Encourages Employment and Facilitates New Business Opening While Recovering the Post-Pandemic Economy D Under the Omnibus Law, 77 Indonesian Laws have been revised through a single law which regulates various sectors. Investment Ecosystem and Business Activities Business Licensing Employment SME and Cooperatives Source: Ministry of Investment (BKPM) Has simplified into Job Creation Law 186 Article dan 15 chapter 11 Cluster Government Investment & Research and Innovation 用 National Strategic Project (PSN) Land Acquisition nan Economic Zones 0000000 000 Ease of Doing Business Public Administration Imposition of Sanctions 30 30#32Positive Investment List: Improving the Investment Ecosystem in Indonesia Changes in the licensing process and expansion of business fields for investment will be a game changer in accelerating investment and opening new jobs Changes in the Regulation of the Investment Business Field Presidential Regulation No 44 of 2016 "Indonesia Negative Investment List" List of Business Fields Closed to Investment 20 business activities Business Activities Allocated for or Requiring Partnership with Cooperatives and MSMEs 145 business activities Business Activities that are Open with Certain Requirements 350 business activities Presidential Regulation No. 49 of 2021 (PR 49/2021), which amends PR 10/2021 "Investment Business Field" Priority Business Activities 246 business activities Business Activities Allocated for or Requiring Partnership with Cooperatives and MSMEs 182 business activities Business Activities that are Open with Certain Requirements Source: Coordinating Ministry for Economic Affairs 37 business activities In principle, all business fields are open to investment, except for business fields that are declared closed for investment or activities that can only be carried out by the Central Government. • Investment value for FDI > IDR 10 billion. However, to encourage technology-based startups in SEZs, FDI investment value can be <= IDR 10 billion Priority Business Activities with the following criteria: National strategic project/program Capital intensive Labour intensive High technology Fiscal Incentives 1. Tax Incentives: • Tax Allowances • Tax Holidays • Investment Allowances 2. Customs incentives in the form of import duty exemption for import of machinery and goods for industrial development and expansion Pioneer industry Export oriented Oriented in research, development, and innovation activities Non-Fiscal Facilities 1. Ease of obtaining business licenses 2. Provision of supporting infrastructure 3. Guarantees on availability of energy and materials 4. Immigration 5. Manpower 6. Other non-fiscal supports 31#33Risk-based Business Licensing Deregulation Measures To Encourage FDI Ex-ante Licensing (satisfying all requirements in advance) is effectively replaced by ex-post licensing (the requirements are checked afterward), which will be particularly advantageous for low- and medium-risk businesses. Starting a Business Doing Business ' The Government implemented OSS-RBA on August 9, 2021, based on Regulation 5 of 2021. • Low Risk Medium Risk High Risk ● Focus on critical hazards that are more likely to arise NIB Issued = 2.108.170 Period August 4, 2021 - September 27, 2022 • Based on Business Scale: RISK-BASED TARGETING - Optimizing Effectiveness and Cost of Monitoring: Resource and time limitations Consider random inspections because blanket inspections are not appropriate, resulting in excessively costly (for countries and businesses) INSPECTION: Based on Business Based on Actor: Investment Type: • . Business Entity . FDI = 7.696 = 294.480 • DDI = Individual = 2.100.474 1.813.690 Short Medium-term • • • - Action Plans Micro = 1.972.476 Small = 98.644 Medium 15.135 = Large 21.915 = Accelerate the reduction of Ex Ante licenses toward Ex Post compliance (Risk-Based Approach) Towards technical regulations for risk management - Third Party System Establish OSS as a national portal for business licenses with legal security Long-term • Based on the risk ● Inspection is carried out to • ensure the implementation of operational and commercial activities according to business standards exception in the implementation of supervision for Micro and Small Enterprises implementation of inspections can be carried out by certified professionals (third parties). The Progress of Development Monitoring/Inspection Subsystem Of the 44 modules in the monitoring (inspection) subsystem: • 36 modules have been completed/embedded in the OSS RBA (go-live) • Speed up better development approach (e.g., climate change, etc.) 8 modules are still in the process of User Acceptance Testing (UAT) 32#34Implementing Regulation on Risk-Based Licensing 51 2. 3. Implementing Regulation 5. 47 4 Implementing Regulations that are directly related to Licensing and Ease of Doing Business: 1. 4. PP No. 5/2021 concerning Implementation of Risk-Based Business Licensing; PP No. 6/2021 concerning the Implementation of Business Licensing in the Regions; PP No. 7/2021 concerning Ease, Protection, and Empowerment of K-UMKM PP No. 8/2021 concerning Company's Authorized Capital and Registration of Establishment, Amendment, and Dissolution of Companies that Meet the Criteria for Micro and Small Businesses PP No. 16/2021 concerning Implementing Regulations of Law no. 28 of 2002 concerning Buildings 6. PP No. 21/2021 concerning the Implementation of Spatial Planning Government Regulation (PP) Presidential Regulation (Perpres) 7. PP No. 22/2021 concerning the Implementation of Environmental Protection and Management 8. PP No. 23/2021 concerning the Implementation of Forestry. 9. Presidential Decree No. 10/2021 concerning Investment Business Sector j.o. Presidential Decree No. 49/2021 The implementing regulation of the Job Creation Law are 194 Ministerial/Agency Regulations, and there are 22 Ministerial/Institutional Regulations that are directly related to the OSS System Source: Ministry of Investment (BKPM) 33 33#35Implementing Regulation on Risk-Based Licensing To Start and Carry Out ☑ Business Activity Basic Requirement for Business Licensing Prior to Law 11/2020 After Law 11/2020 Location Permit Environmental Permit Building Permit (IMB) and Building Function Certificate (SLF) Suitability of Space Utilization Activities (KKPR) Environmental approval Building Approval (PBG) and SLF • Risk Based Business Business Licensing to Support iness Business Activity (PB UMKU) Licensing (KBLI) Risk-Based Business Licensing based on KBLI regulated in PP 5/2021. The fulfillment of provisions, requirements and obligations is based on the Sector PP, Presidential Regulation, and Permen/Perban* derivatives of PP 5/2021. - - Previously (OSS 1.1) was known as Commercial/Operational License PB UMKU services are carried out entirely through the OSS system PB UMKU is in the process of finalizing the system with Line Ministries and there is an agreement: • • if the nomenclature and services have been accommodated in the line ministries system, first the system integration will be carried out, however if it has not been accommodated by the line ministries system, the priority is immediately planted in the OSS system. *) Various requirements are regulated in 22 Candy/Bandages that must be accommodated and planted in the OSS system Source: Ministry of Investment (BKPM) 34 =4#36Improving National Logistics System Resiliency: "Key Priorities In Encouraging The Investment The government established an integrated logistics system through The National Logistic System Development Policy (SISLOGNAS). This system aims to facilitate the flow of goods to fulfil the community's basic needs and increase the competitiveness of national products. LOGISTICS PROGRAM FOR 2022-2024 1 Commodity-based improvement framework 1. Specify a specific commodity. 2. 3. Identify demand patterns, supply patterns and logistics costs. Set logistics efficiency targets for these commodities, for example: a. Lead time for domestic goods delivery; Increasing national logistics efficiency, focusing on food and health products This focus aims to ensure the availability and reliability of logistics services to support the smooth distribution of goods at the district and city levels. Increasing efficiency and effectiveness of export/import flows of national leading products and imports of priority industrial raw materials. This focus aims to improve the smooth flow of exports and imports, both goods and documents, to increase Indonesian products' competitiveness in the global market. Source: Coordinating Ministry for Economic Affairs 2 3 b. Lead time at the port for import-export goods. Strengthen Key-Enabler 1. Mapping and collaborating stakeholders and off-takers to implement the action plans. 2. Establish a responsible organization to ensure the implementation of action plans to support the achievement of logistics efficiency targets. Organizing action plans based on 6 key drivers Preparing action plans based on the six key drivers to achieve efficiency in national logistics and the effectiveness of export/import flows. 6. Regulations, Rules and Legislation 5. Human Resource Management 4. ICT 3. Logistics Service Provider 2. Transportation Infrastructure Competitiveness and Social welfare 1. Main Commodity Sources: RPJMN 2020-2024; Presidential Regulation No.26/2012 Concerning Blueprint of National Logistics System Development Key Drivers: Logistic Action Plan Transportation Infrastructure → There are +90 projects of infrastructure development spread across Indonesia, such as toll roads, ports, airports and railways, to support the improvement of the logistics process Logistics Service Provider → Through Government 5/2021, of the total 81 standard classifications of business field in overall logistics sectors, 72 (around 89%) required NO LICENSE but only identification business number and/or standard certificate. Furthermore, through Presidential Regulation 10/2021, there are relaxations toward foreign investment requirements. In the logistics sectors, the relaxations take form in the allowability of foreign investment equity to fully own a business. ICT NLE is a system to provide one-stop services for the transmission of data, trade logistics documents, and secure and reliable information to serve G2G, G2B, and B2B transactions for domestic and international trade Human Resource Management → Some programs include (a) The establishment of the National Occupational Map for Logistics and Supply Chain (b) Legalization of the Indonesian National Occupation Competency Standards#37Government Continues to Support the Development of Downstream Industries Smelter Development 8 2 2 Total 53 14 Nickel Bauxite Copper SMELTER 8 7 <30% 30%-90% >90% Iron, Mangan, Lead & Zinc Indonesia's Coal Gasification Roadmap until 2045 2021 2025 2030 Total Number and Investment Smelter 2021-2024 Commodity Existing Number of Smelter Plan TOTAL Total Investment (Mio $) Nickel 13 17 30 8.006,5 Bauxite 2 9 11 8.647,2 Iron 1 3 4 193,9 Copper 2 2 4 4.693,2 Mangan 1 1 Lead and Zinc 0 2 TOTAL 19 34 228 23,9 28,8 53 21.593,6 2035 2045 2021-2025 Establishment of 3 Gasification Plants for DME and/or Industry Import of LPG has decreased by 3,51 million tons by DME substitution Infrastructure and Product Distribution Channel for Coal Upgrading Phase-1 has been built Establishment of Coke Factory for Metallurgy Increased value-added of around 19.6 million tons of coal in the Coal Downstream Industry. • 2026 - 2030 Increased capacity of the Gasification Industry to meet the demand for DME and Industry Establishment of 2 Coal to SNG plants in Sumatra. Establishment of a bio-coal briquette factory and implement the use of bio-coal briquettes. Coal Upgrading industry started operation. Increased value-added of around 22.7 million tons of coal in the Coal Downstream Industry. • . 2031 - 2035 Increased capacity of the Gasification Industry to meet the demand for DME and Industry Establishment of 2 Coal to SNG plants in Sumatra & 1 plant in Kalimantan. Establishment of the Coal Liquefaction Industry to substitute imported gasoline Establishment of REE industry and Advanced Materials, Agri- Industry, Materials from coal. Increased value-added of around 28.7 million tons of coal in the Coal Downstream Industry. • 2036-2045 Increased capacity of the gasification industry to meet the demand for 19.81 million tons of Methanol for DME and Industry Increased capacity (optimization) in each Coal Downstream Industry There has been an increase in value-added of around 40.7 million tons of coal in the Coal Downstream Industry. Source: Ministry of Energy and Mineral Resources 36#38Indonesia Encourages Down streaming of Commodities One of which is Encouraging the Development of Nickel-Based Industries to Become a Global Battery and EV Supplier A. The ban on nickel ore exports maintains the availability of raw materials for downstream industries 1. Potential: Indonesia's Nickel Reserves Are Abundant 2. Strategies Global Nickel Reserve INDONESIA 21,0 M Australia 20,0 M Commodity Brazil Other 16,0 M 14,0 M Russia 6,9 M Nickel Ore (HS 2604) Cuba 5,5 M Philippines 4,8 M Also rich in other battery materials reserve South Africa 3,7 M China 2,8 M #5 Canada 2,8 M Guatemala 1,8 M Madagascar 1.2 billion ton 51 million ton 43 million ton 1,6 M Aluminium Copper Manganese Colombia 0,4 M US 0,1 M Cobalt Lithium Graphite Indonesia's nickel reserves are the largest reserves in the world reaching 21 million nickel ore or with a share of 23.7% of all world reserves. Source: Coordinating Ministry for Economic Affairs Export Value (Million USD) 2019 2020 2021 Indonesia and the Main Exporting Country 1.097 Prohibited → 0 Prohibited → 0 600 1.056 1st B. Invest in End-to-end EV Battery value chain development Estimated total investment of USD 15.3 Billion*) to build End-to-end value chain EV Batteries with a capacity of 140 GWh C. Supporting Regulation Presidential Decree No. 55 of 2019 to Accelerate the Use of Battery Electric Vehicles (BEV) on the Road & Government Regulation No. 74/2021 - Accelerated Development of BEV 3. Benefits and Added Value of Nickel Downstream Input Nikcel Value added process Output Value-added 90 to 150 Batter times 37#39Investment Realization in Q2-2022 QI QII Q III QIV QI QII QIII QIV QI QUI QIII QIV QI QII Q III QIV QI QII Q III QIV QI QII 2017 2018 2019 2020 2021 2022 ■DDI 67,807 104,255 109,711 127,228 103,982 133,602 89,662 142,478 97,914 141,153 109,475 171,629 151,166 145,311 152,457 162,401 165,630 165,684 133,972 161,377 190,728 180,952 ■FDI 126,327 241,068 176,786 223,171 97,257 156,241 124,109 112,761 137,487 114,161 103,106 158,910 151,919 117,798 142,930 132,379 146,163 146,238 154,715 134,114 128,285 139,582 Total 194,134 345,323 286,497 350,399 201,239 289,843 213,771 255,239 235,401 255,314 212,581 330,539 303,085 263,109 295,387 294,780 311,793 311,922 288,687 295,491 319,013 320,534 FDI: Foreign Direct Investment DDI: Domestic Direct Investment *) The achievement of investment realization is rounding numbers in IDR trillion 2021 2022 Q-II 2022 Q-I Q-II Q-I Q-II Y-O-Y Q-O-Q TARGET 2022** ACHIEVEMENT*** DDI 108.0 106.2 135.2 139.0 30.8% 2.8% 572.4 47.9% FDI 111.7 116.8 147.2 163.2 39.7% 10.8% 627.6 49.5% TOTAL 219.7 223.0 282.4 302.2 35.5% 7.0% 1,200.0 48.7% JANUARY - JUNE JANUARY - JUNE JANUARY - JUNE 2022 Indonesian Labor 2021 2022 Y-O-Y Absorption Q II 2021 : 311.922 DDI 214.3 274.2 28.0% Indonesian Labor FDI 228.5 310.4 TOTAL 442.8* 584.6 Absorption Q II 2022 : 320.534 (2.8%, y-o-y) *) The achievement of investment realization in January June 2022 period is a rounded number **) 2022 Investment Realization Target Rp 968 4 T (Strategic Plan) As regulated in BKPM Regulation no 2 of 2020 concerning BKPM Strategic Plan 2020 2024 The adjustment of investment realization target for 2022 Rp 1 200 T (President's Instruction) ***) Towards the 2022 investment realization target according to the President's Instruction Source: Ministry of Investment (BKPM) 35.8% 32.0% JANUARY JUNE QUARTER II y-o-y 302.2 282.4 35.5% 219.7 223.0 Q-I 2021 Q-II 2021 Q-I 2022 Q-II 2022 In Trillion Rupiah y-o-y 584.6 32.0% 442.8 2021 2022 In Trillion Rupiah 38#40Investment Realization in Q2-2022 (excluding the upstream oil and gas sector and financial services) Top 5 Investors (by country) (in USD billion) Singapore 3.1 27.7% China 20%.0 2.3 Hong Kong 11.9% 1.4 Japan 0.9 8.1% USA 6.8% 0.8 Source: Ministry of Investment (BKPM) By Region in IDR Trillion Riau 20.7 East Java 29.9 Central Sulawesi 10.6 Special Territory of Jakarta 40.1 West Java 44 By Sector in IDR Trillion Electricity, Gas, and Water 22.4 Housing, Industrial Estate, and Office Building 25.6 Mining 26.7 Transportation, Warehouse, and Telecommunication 33 Metal, Metal Goods, Except Machinery, and Equipment Industry 48.2 39#41Investment Realization in Q2-2022 (excluding the upstream oil and gas sector and financial services) Outside Java IDR 113.8 T (51.0%) Q2-2021 Total: IDR 223.0 T Realization y-o-y Java Java 32.9% IDR 109.2 T (49.0%) Outside Java TOTAL 38.0% 35.5% Outside Java IDR 157.1 T (52.0%) Direct Investments IDR tn FDI DDI TOTAL Q2-2022 Total IDR 302.2 T Java IDR 145.1 T (48.3%) III 302.2 139.0 163.2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2013 2014 Source: Ministry of Investment (BKPM) 2015 2016 2017 2018 2019 2020 2021 2022 40 40#42National Strategic Project (PSN) consists of 200 Projects and 12 Programs with estimated investment value of USD 396,23 Billion* 42 Prayak Sumatera USD 52 B 13 Kalimantan Proyek USD 16.3 B 1 81 Program Proyek Jawa AL USD 134.2 B 11 11 Program Proyek Nasional USD 105.4 B 22 Proyek Sulawesi 13 Proyek Maluku & Papua USD 38.7 B 68% USD 2.2.8 B 18 Proyek Bali & Nusa Tenggara USD 3.1 B PSN covers 13 sectors and 12 program 13% Investment 19% Proportion APBN/D BUMN/D Private Toll Road Dam & Irrigation Industrial Estate Railway Energy Seaport 53 Projects 18 Projects 14 Projects 14 Projects 15 Projects Water & Sanitation 14 Projects Airport Tourism 6 Projects 1 Proyek Education Technology Housing 1 Project 6 Projects 2 Projects Smelter Program 55 Projects до Superhub Program Electricity Program *) based on Coordinating Minister Regulation No 9/2022 Toll Access Food Estate National Tourism Program Economic Equity Program Program 1 USD 14.700 USD Program Border Dev. Waste to Region Dev. Energy Program Program Acceleration Program 41#43Up until June 2022, 135 PSN with an investment value of USD 58.4 bio have been completed Completed in H1-2022 7 Projects (USD 9.4) • 3 Industrial • 1 Seaport 1 Transmission 1 Waste Treatment • 1 Border Dev. Nasional Completed in 2016 20 Projects (USD 2.3 B) Completed in 2017 Completed in 2018 10 Projects (USD 4.2 B) 32 Projects (USD 14.1 B) Completed in 2019 Completed in 2020 30 Projects (USD 11.2 B) 12 Projects (USD 8.4 B) Completed in 2021 24 Projects (USD 8.6) • . 7 Airport • 2 Toll Road • 2 Railway 4 Airport 1 Airport • 6 Toll Road • • 1 Toll Road • 1 Access Road • 4 Dam 4 Dam 1 Railway • 1 Kereta • . 6 Dam • 1 Airport . 1 Irigasi 9 Jalan . 2 Toll Road • 1 Industrial Estate • . 1 Seaport • 1 Gas Facility . 10 Toll Road 6 Industrial • 1 Seaport • 1 Housing • 1 Gas Piping . 3 Border Dev. . 5 KEK • 2 Railway 1 Water • 2 Water • . 4 Border Dev. • 1 Dam • 1 Airport 1 Seaport 3 Industrial Estate • 11 Dam • • 1 Irrigation • 4 Industrial Estate 2 Smelter 3 Dam • 1 Seaport • • 4 Smelter 2 Technology . 1 Technology • 1 Fisheries Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) *) 1 USD = 14.700 USD 42#44Government of Indonesia has set various initiatives to drive private sector participation in Infrastructure sector especially for National Strategic Projects 1 2 3 4 I Public Private | Partnership (PPP) Limited Concession Integrated Land Value Funding Capture (LVC) Scheme (LCS) Platform 43 33#45Government of Indonesia has conducted institutional reforms to establish a conducive PPP ecosystem... 1 Institutional Reforms for PPP Implementation koop KPPIP: P Coordinating unit in KANTOR BERSAMA KPBU REPUBLIK INDONESIA Public Private Partnership (PPP) decision-making processes and debottlenecking efforts for infrastructure acceleration capacity building to encourage supports the use of PPP schemes project preparation PPP Joint Office: Information center for policy Indonesia Infrastructure IIGF Guarantee coordination and Fund: Provides guarantee and ♥SMi Sarana Multi Mi Infrastruktur: Facilitating infrastructure financing, preparing project, and serving advisory Project Development Facility (PDF) PPP Stages Outline Business Case Determination of Funding Scheme Tender document + Transaction PPP Agreement Financial Close preparation Final Business Case (FBC) Legend P Happ Ministry of National Development Planning Ministry of Finance PIC Government Contracting Agency (PJPK) IIGF PPM/ Kementerian PPM Bapp Bappenas Business Entity KANTOR BERSAMA KPBU REPUBLIK INDONESIA KANTOR BERSAMA KPBU REPUBLIK INDONESIA KANTOR BERSAMA KPBU REPUBLIK INDONESIA IIGF Ckp VSMI P Business Entity Lender Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 44#46... and has issued end-to-end regulations and supports to encourage PPP projects implementation 1 Public Private Partnership Project Development Facility (PDF) Preparation Project development facility assists the Government Agency (GCA) in (PPP) Contracting PPP project preparation (PDF&TA) Managing entity: KPPIP, PT SMI and PT IIF, Ministry of Finance Viability Gap Funding (VGF) Guarantee Scheme Tax Facilities Availability Payment Land Acquisition A facility which contributes to construction cost in order to increase project financial feasibility Managing entity: Ministry of Finance based on GCA proposal Govt's commitment: Max 49% per project cost Guaranteeing govt. contractual obligations under infra. concession agreements and MoF Reg. No. 130/PMK.08 /2016 re: Govt. guarantee for electricity project acceleration Managing entity: Indonesia Infra. Guarantee Fund (IIGF) and MoF Govt's commitment: US$ 450 Mil Bidding Process MoF Reg. No. 150/2018 allowed 100% Tax Holiday for 18 Pioneering Industries for 5 - 20 years depending on the investment value. The tax holiday is not only given to the new investments but can also be obtained by the existing taxpayers who want to expand their business. Managing entity: Ministry of Finance A scheme in which concessionaires receive periodic payments from central or regional government if the service standard is fulfilled. The MoF Regulation and MOHA Regulation on Availability Payment have been stipulated. Managing entity: Ministry of Finance Ministry of Home Affairs Construction A facility to support land acquisition for infrastructure projects particularly projects that involve private sector Managing entity: Ministry of Finance; Ministry of Agrarian and Spatial Planning/BPN, and BLU-LMAN Govt's commitment: US$ 1.2 Bio (2016) US$ 2.4 Bio (2017) US$ 2.6 Bio (2018) The Government has just issued GR No. 78/2019 regarding Tax Allowance Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) Synchronization with 1 Online Single Submission (OSS) System 2 Additional positive list from 145 to 183 type of business sectors 3 US$ 1.6 Bio (2019) Certainty on specific eligible assets allowed to obtain the incentives 445#47Government of Indonesia has stipulated Limited Concession Scheme as an asset recycling scheme for brownfield infrastructure asset 2 Limited Concession Scheme (LCS) Limited Concession Scheme (LCS) is a concession agreement, that includes asset operations and development, between Government and Private Entities for 20+ years of concession period. LCS Concept 900 ARR Government can get: • • • Upfront payment that can be received at the time of Financial Close, and/or Annuity payment during the concession period Additional incentives in the form of revenue sharing All future CAPEX will be borne fully by the concessionaire, thus easing the burden of Government's budget Government guarantees the issuance of permits and licenses Flexible operations allow private sector to innovate and increase revenue Does LCS serve as privatization? NO It does not eliminate the ownership and control of the Government Government remains the owner of the infrastructure asset LCS limits "super-profits" for concession holders Government will receive upfront payment yet its not selling the asset Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 46#48Limited Concession Scheme as an Alternative of Financing through Presidential Regulation No 32/2020 on Infrastructure Financing through Limited Concession Scheme 2 Limited Concession Scheme (LCS) Definition Limited Concession Scheme of Infrastructure Asset is the asset concession agreement to improve operations of Government assets (BMN) and/or SOEs' assets to generate revenue to improve similar project operations and/or finance other infrastructure provision Infrastructure Financing Priority Revenue generated by the LCS will be used to fund the priority infrastructure projects and/or national strategic infrastructure projects LCS Principles LCS transfers concession rights from brownfield asset owned by the Government and/or SOEs to private sector to operate, maintain, and develop the assets; As the rewards, Government and/or SOE will receive upfront payment or annuity payment during the concession period Future CAPEX during the concession period will be borne by the concession holder to ease the Government and SOE budget burdens Technical Criteria for the LCS assets The asset has been fully operated for minimum 2 years The asset needs to improve operation efficiency based on international standard ✔ Asset's useful life minimum is 10 years For the SOE's asset, the asset must have positive cash flow for minimum 2 years in a row and has been audited at least 3 years in a row ✔ For Government asset (BMN), the asset should be on the Ministry Financial report that has been audited based on the Government Accountancy Standard in the previous period Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 47#49SDG Indonesia One is launched by PT SMI as an integrated funding platform for private investor 3 Integrated Funding Platform Profile of PT SMI • • PT SMI is a SOEs' non-bank financial institution with 100% of its shares owned by the Indonesian government. The first financial institution in Southeast Asia accredited by Green Climate Fund (GFC SDGs Initiative THE WORLD BANK AllB WASTEST BASE ADB AFD gef ACTE M Standard MUFG CTBC BANK Maybank HSBC DBS mandiri UOB Chartered BCA Demon ⚫EMTN Program USD 2 billion Shelf Registration Conventional Bonds I Ro 30 trillon ⚫Shelf Registration Conventional Bonds Il Rp 25 trilion 17 Shelf Registration Sukuk Mudharabah Rp 3 million Shelt Registration Green Bonds Rp 3 trillion sh MTN Ruplah Rp 850 bloo ⚫ MTN USD 300 mic • The platform was launched in October 2018 • The Pipeline Projects comprise public transportation sector, health care, renewable energy, tourism and drinking water supply system Impact toward SDGs: Increase funds availability for infrastructure projects and project appropriateness. KFW Development Partners Bank Loan SMI Capital Market USD 700 min Offshore Loan Syndication Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) Infrastructure Projects Source: PT SMI, 2019 MOXSDA'S 2000 PITER Focuses on 15 out of 17 components in SDGs which are related to infrastructure development 48#50Indonesia Investment Authority (INA) as an Alternative Source of Economic Development Financing İNA INDONESIA INVESTMENT AUTHORITY PP Number 73 of 2020 concerning Initial Capital for indonesia Investment Authority • PP Number 74 of 2020 concerning Indonesia Investment Authority Legal basis Development . • PP Number 49 of 2021 concerning Tax Treatment of Transactions Involving Indonesia Investment Authority and/or Entities Owned PP Numbers 110 and 111 of 2021 concerning the Addition of PMN to the Capital of Investment Management Institutions The Supervisory Board has been formed based on Presidential Decree No. 6/P of 2021 The Board of Directors has been formed based on the Decree of the INA Council Number 1 of 2021 An initial capital of IDR 15 T has been allocated in 2020, and an additional capital of IDR 15 T from PMN and from the transfer of shares amounting to IDR 45 T There have been discussions with more than 50 companies to become strategic partners, and several countries have expressed a desire to partner with INA Main Sectors of Investment Toll Road Airport Industrial Area Digital Infrastructure Traditional Energy Health Services Seaports Renewable Energy Plantation Development of INA's Investment Cooperation ☐ The total investment opportunity commitment received up to June 2022 reached >USD 20 billion. ☐ At least two investment opportunities are expected to be closed in 3Q 2022: Toll Road and Seaport. ☐ Current cooperation agreements secured are: • Toll Road: Investment platform with ADIA, CDPQ, and APG for USD 3.75 billion. Hutama Karya's opportunity is expected to close in December 2022, while ADIA is reevaluating the Waskita Karya opportunity. Seaports: Alliance agreement with DP World to develop ports and support infrastructure amounting to USD 7.5 billion throughout the concession period. • General: USD 10 billion investment framework agreement with ADG for various sectors in Indonesia Investment opportunity that has been completed: Digital infrastructure: Mitratel's IPO with ADIA, ADG, and GIC for a total of USD 770 million Source: Coordinating Ministry for Economic Affairs 49#51Currently KPPIP is developing a Land Value Capture Scheme to further unlock infrastructure investment potential Au Land Value Capture (LVC) A policy approach that enables communities to recover and reinvest economic value increases and increases in economic productivity that result from public investment and other government actions. (Lincoln Institute of Land Policy) Open Housing & Settlement Keep Investing- network Grows " • Human Settlement Improvement Tax based LVC Development Based LVC Land Sale and Rent Land and Property Tax alue Uplift Betterment Levies and Special Assessment Tax Increment Financing (TIF) Air Right Sale Joint Development Land Readjustment Retain a Portion LVC Benefit Local revenue from tax and levy Better city planning and development Regional growth Distributed development in urban area Triple Win LVC Better Urban Mobility Reducing Subsidy Source: KPPIP, Kemenko Perekonomian, Desember 2020 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) Creating Fiscal Space 50 50#52All National Strategic Projects have been given a special facility to ease each of the project's implementation as stipulated in the Pres. Regulation No. 109/2020 PSN Facility Land transfer fee waiver for PSN Local content utilization Electronic permit licensing Government guarantee Spatial planning IT Monitoring system by KPPIP Land aquisition Existing New norm on Presidential Regulation No. 109/2020 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) SOE appointment Debottlenecking Procurement acceleration Law settlement assistance Project acceleration for private investment 51 5554#53الا Government of Indonesia has ratified a number of significant implementing regulation as part of regulatory reform to ease infrastructure investment Government Regulation No. 42/2021 on Ease of Doing Business for PSN Government Regulation No. 19/2021 on Land Acquisition for Public Interest Government Regulation No. 43/2021 on Spatial Adjustment for Forest and Land Right/Permit TTT טטט ****** ********** Government Regulation No. 21/2021on Spatial Planning Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) Government Regulation No. 64/2021 on Land Bank Institution 52 2#54Government Guarantee For Basic Infrastructure Development Reflects strong commitment to national development planning Government Guarantee Program Credit Guarantee Business Viability Guarantee (BVG) PPP Guarantee Political Risk Guarantee Power (Electricity) - Full credit guarantee for PT PLN's debt payment obligation under FTP 1 10,000MW and 35GW programs*. 1 Clean Water - Guarantee for 70% of PDAM'S debt principal payment obligations. - Toll road Full credit guarantee for PT Hutama Karya's debt payment obligations for the development of Sumatra Toll Roads. Infrastructure Full credit guarantee on SOE's borrowing from international financial institution & guarantee for PT SMI's local infrastructure financing. - Public Transportation (Light Rail Transit) Full credit guarantee for PT Kereta Api Indonesia's debt payment obligations for the development of LRT Jabodebek. - Power (Electricity) - Guarantee for PT PLN's obligations under Power Purchase Agreements with IPPS (off-take and political risk) under FTP-2 10.000MW and 35GW programs* Infrastructure - Guarantee for Government- related entities obligations (line ministries, local governments, SOEs, local SOEs) under PPP contracts/agreements Infrastructure Guarantee against infrastructure risks for National Strategic Projects (Presidential Decree No.58/2017) which are not covered by other type of guarantees Source: Ministry of Finance Contingent Liabilities from Government Guarantee as of Q2 2022** No. Central Government Guarantee for Infrastructure Programs Guarantee Document Credit Outstanding /Investment Exposure (billion)* 1 2 Coal Power Plant 10,000 MW Fast Track Program (FTP 1) Clean Water Supply Program 5 USD 0.37 6 USD 0.00 3 Direct Lending from International Financial Institution to 11 USD 2.32 SOES 4 Sumatra Toll Road 10 USD 2.99 5 Renewable energy, Coals & Gas Power Plant 10,000 MW 7 USD 4.00 (FTP 2) 6 Public-Private Partnerships (PPP) 7 Regional infrastructure financing 8 Public Transportation (Light Rail Transit) 9 Electricity Infrastructure Fast Track Program (35 GW) 5 Total 54 7 USD 6.34 NI 1 USD 0.20 2 USD 0.91 USD 6.27 USD 23.40 From 2008 to Q2-2022**, the government has issued 94 guarantee documents with total value of USD42.07 billion, there were 40 guarantee documents worth USD9.26 billion have been expired. 1 The Maximum Guarantee Limit for the period 2022-2025 is set at 6% of GDP. Starting from 2008 the Government has allocated a contingent budget with respect to these guarantees. Any unused budget allocation may be transferred to a guarantee reserve fund. This reserve fund, together with the relevant annual budget allocations, serves as reserves for any claim that arises from these guarantees. *) MOF provides both credit guarantees and BVGs for 35GW program **) Currency conversion of IDR14,848.00/USD1 and IDR15,609.72/EUR1 (as of end June 2022) 53#55Section 3 Economic Factor: Stable Growth Prospects Supported by Continued Economic Recovery Momentum BHINNEKA TUNGGAL IRA#56Conducive Environment Underpinning Stable Growth Fundamentals Amid Temporary Moderation Largest Economy in South East Asia Manageable Inflation Rate 4th Most Populous country in the World; 64% in productive age Rising Middle Class and Affluent Customers From commodity-based to manufacturing and service sectors via infrastructure development From consumption-led to investment- led growth via a stronger manufacturing sector and more investment initiatives Policies to maintain purchasing power to stimulate domestic economy in the midst of weakening macroeconomic conditions Large and Stable Economy Consistent Budget Reform Reform-Oriented Administration New Economic Structure High Infrastructure Investments Budget reform as a part of larger economic reform initiative Tax base to be broadened from one reduce dependency on commodities Fuel subsidies significantly reduced and spending redirected to more productive allocation Prudent debt management Three main sources of financing for investment needs: State and regional budget, State Owned Enterprises and PPP Continuing from 2015 policy, infrastructure spending will be higher than fuel subsidy Infrastructure spending focused on basic infrastructure projects Fiscal and non-fiscal incentives to attract infrastructure investment and promote PPP 55#57National Economic Recovery Continue to Accelerate Strong GDP Growth¹ 8.0 QoQ - YoY 6.0 4.0 5.05 Love 2.0 3.8327 3.7431 4.01 4.01 4.21 4.20 3.14 3.19 3.09 3.05 0.04 3.31 1.5506 0.0 -2.0 (0.16) (2.07) (1.73) (1.810.30) (1.7.41) 730.36) (1.69) (1.742.41) (0.400.94) (0.52) (0.95) (4.19 -4.0 -6.0 -8.0 Q1 Q3 Q1 Q3 Q1 Q3 2014 2015 7.07 5.01 5.02 5.44 3.72 The national economy in Indonesia posted strong growth in the second quarter of 2022 despite the risks posed by global economic moderation and increasing inflationary pressures. Economic growth in the second quarter of 2022 accelerated significantly to 5.44% (yoy) from 5.01% (yoy) in the previous period. Faster economic growth was supported by growing domestic demand, particularly household consumption, and persistently solid export performance. National economic improvements were also reflected in higher growth among most economic sectors and in all regions. Moving forward, the economic gains are expected to persist on increasing mobility, sources of finance and corporate activity. Notwithstanding, the impact of global economic moderation on export performance, coupled with potentially restrained household consumption in response to higher inflation, demand vigilance. In terms of spending, economic growth in the second quarter of 2022 was driven by nearly all components. Household consumption soared to 5.51% (yoy) from 4.34% (yoy) in the previous period, boosted by greater public mobility as the Government relaxed mobility restrictions together with the national religious holiday (HBKN). In contrast, investment moderated to 3.07% (yoy), primarily due to building investment amid solid non-building investment performance. Meanwhile, government consumption contracted 5.24% (yoy), particularly due to lower procurement associated with Covid-19 handling and the national economic recovery as pandemic conditions improved. Export growth increased to 19.74% (yoy) on the back of persistently solid demand from Indonesia's key trading partners. Furthermore, import growth was also high at 12.34% (yoy) in line with growing domestic demand and improving export performance. Economic improvements persisted in nearly all economic sectors in the second quarter of 2022, primarily driven by the Manufacturing Industry, Transportation and Storage as well as Wholesale and Retail Trade.Tenggara (Balinusra). 2022 Growth Projection *) Q1 Q3 Q3 Q1 Q3 Q1 Q3 192 2016 2017 2018 2019 2020 2021 2022 Favourable GDP Growth Compared to Peers² 10.00 % yoy 7.40 6.70 5.80 5.00 5.30 0.00 3.20 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 -5.00 Institutions GDP growth -10.00 Bulgaria India Colombia Indonesia -15.00 Philippines 2022 Budget Bank Indonesia IMF (WEO, July 2022) 4.8-5.5 4.5-5.3 5.3 1. 2. Source: Central Bureau of Statistics of Indonesia (BPS), ** Including non-profit household consumption World Bank (GEP, June 2022) Source: World Economic Outlook Database - July 2022; * indicates estimated figure 5.1 *) Consensus Forecast number will be given later ADB (ADO, July 2022) 5.2 56#58GDP Growth Breakdown GDP Growth Based on Expenditures (%, YoY)¹ 2017 2018 2019 2020 2021 2022 By expenditure Q1 Q2 Q3 Q4 Tot Q1 Q2 Q3 Q4 Tot Q1 Q2 Q3 Q4 Tot Q1 Q2 Q3 Q4 Tot Q1 Q2 Q3 Q4 Tot Q1 Q2 HH. Consumption 4.9 5.0 4.9 5.0 4.9 5,0 5,2 5,0 5,1 5,1 5,0 5,2 5,0 5,0 5,0 2,8 -5,5 -4,0 -3,6 -2,6 -2,2 6,0 1,0 3,6 2,0 4,3 5,5 Non profit HH. consumption Government consumption Gross Fixed Cap. Formation 8.1 8.5 6.0 5.3 6.9 8,1 8,8 8,7 10,9 9,1 17,0 15,3 7,4 3,5 10,6 -5,0 -7,8 -1,9 -2,1 -4,2 -3,7 4,0 2,8 3,3 1,6 5,8 5,0 2.7 (1.9) 3.5 3.8 2.1 2,7 5,2 6,3 4,6 4,8 5,3 8,2 1,0 0,5 3,3 3,8 -6,9 9,8 1,8 2,0 2,5 8,1 0,6 5,2 4,2 -7,6 -5,2 4.8 5.3 7.1 7.3 Exports Imports GDP 6.2 7,9 5,8 6,9 8.4 2.7 16.5 8.4 8.9 5,8 7,4 8,3 4,6 6,5 4.8 0.2 15.4 11.9 8.1 12,5 15,2 14,2 7,4 12,1 -5,8 5.0 5.0 5.1 5.2 5.1 5,1 5,3 5,2 5,2 5,2 5,1 6,1 6,7 5,0 4,6 4,2 4,1 4,5 1,7 -8,6 -6,5 6,2 -5,0 -0,2 7,5 3,8 4,5 3,8 4,1 3,1 -1,1 -1,2 0,9 -0,6 0,5 0,2 -12,4 -13,0 -6,9 -8,1 6,9 31,5 29,2 29,8 -5,9 -8,5 -8,1 -7,1 -5,4 -20,7 -24,5 -15,8 -16,7 4,4 31,8 29,9 29,6 24,0 16,7 19,7 23,3 15,9 12,3 5,1 5,0 5,0 5,0 3,0 -5,3 -3,5 -2,2 -2,1 -0,7 7,1 3,5 5,0 3,7 5,0 5,4 ** Source: Central Bureau of Statistics of Indonesia (BPS), Including non-profit household consumption GDP Growth by Sector (%, YoY) 2017 2018 2019 2020 2021 2022 By sectors Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot Q1 Agriculture, forestry, and fishery Mining and Quarrying 7.1 3.3 2.8 2.4 3.9 3,3 4,7 3,6 3,8 3,9 1,8 5,3 3,1 Q2 Q3 Q4 Tot 4,2 3,6 Q1 Q2 Q3 Q4 Tot Q1 0,0 2,2 2,2 2,6 1,8 3,4 (1. 2.1 1.8 0.0 0.7 1,1 2,6 2,7 2,2 2,2 2,3 -0,7 2,3 0,9 1,2 0,4 -2,7 -4,3 -1,2 -2,0 -2,0 5,2 3) Manufacturing Construction 4.3 3.5 4.9 4.5 6.0 7.0 7.0 7.2 4.3 4,6 3,9 4,4 6.8 7,4 5,7 5,8 4,2 4,3 3,9 3,5 4,1 3,7 3,8 5,6 6,1 5,9 5,7 5,6 5,8 5,8 -5,4 -4,5 -5,7 -3,3 -0,8 2,1 6,2 -4,3 -3,1 -2,9 -1,4 6,6 3,7 4,9 2,9 4,4 3,8 3,9 Wholesale and Retail Trade, Repair of Car and Motorcycle 4.6 3.5 5.2 4.5 4.5 5,0 5,2 5,3 4,4 5 5,2 4,6 4,4 4,2 4,6 1,5 -7,7 -5,1 -3,7 -3,8 -1,3 Transportation and Storage 8.1 8.8 8.9 8.2 8.5 8,5 8,7 5,7 5,5 7 5,4 5,8 6,7 7,6 6,4 Information and communication Financial service 10. 5 6.0 5.9 6.1 3.8 11.1 8.8 8.3 9.6 7,8 5,1 8,1 7,1 7 9,1 9,6 9,2 9,8 9,4 5.5 4,3 3,1 3,1 6,2 4,2 7,2 4,5 Other Services GDP 4.2 3.5 4.8 6.0 5.0 5.0 5.1 5.2 5.1 4,6 5,4 6,2 6,7 6,4 6,2 6,8 7,3 5,1 5,3 5,2 5,2 5,2 5,1 5,1 9,8 10,8 10,7 11,0 10,6 8,7 6,2 8,5 6,6 10,6 1,1 -0,9 2,4 3,2 -3,0 6,4 6,2 6,7 5,0 5,0 5,0 9,5 1,3 -30,8 -16,7 -13,4 -15,0 -13,1 25,1 -0,7 7,9 6,9 5,2 5,6 4,6 -6,3 -1,4 -1,7 -1,2 -2,5 3,0 -5,3 -3,5 -2,2 -2,1 -0,7 7,1 Q2 Q3 Q4 Tot Q1 Q2 0,5 1,4 2,3 1,8 1,2 1,4 7,8 5,2 4,0 3,8 4,0 3,4 5,1 4,0 2,8 4,8 1,0 4,7 5,7 4,4 3,2 15,8 21,3 5,5 6,2 6,8 7,2 8,1 8,3 4,3 -2,6 1,6 1,6 1,5 9,8 -0,8 3,4 2,4 3,2 4,0 3,5 5,0 3,7 5,0 5,4 Source: Central Bureau of Statistics of Indonesia (BPS) *Other services consist of 10 sectors (according to Standard National 2008) 57 44#59Economic Performance Improved In Almost All Regions Growth of Regional Economic (GDRP) of the Second Quarter of 2022 (%, yoy) -0.87 ACEH -0.85 Sumatra 5.29 4.95 4,56 4.04 3.8 M North 4.70 2011 Η BLAU 4.88 W South Sumatra 5.08 JAMBI 5.41 BENGKULU 4.76 7.94 Java I 2021 Blau Islands 5.01 South Sumatra Babel Islands 5.21 West Kalimantan 4.45 -2.23 Kalimantan 6.32 4.54 4.31 4.25 3.24 3.44 8.84 Sulampua 9.05 8.22 G.93 6.01 IM " A : 1021 2021 North Kalimantan 24.01 East GORONTALO Central Kalimantan 3.03 7.31 South Kalariantan 5.81 West Sulawesi 2. Central Sulawes 11.17 LAMPUNG 5.22 DKI 5.59 South Sulawesi 5.18 Central Jawa West 5.66 BANTEN 5.70 BALI NTB East 5.68 1.04 5.59 DIY 5.20 5.GG 5.07 4.82 3.07 Source: BPS, calculated IM -5.13 2022 Source: Central Bureau of Statistics of Indonesia (BPS), calculated Balinusra 3.75 " 0.1 3.46 3.94 1.9 IM H 2031 2032 4.91 North Sulawesi 5.93 North Maluku 27.74 West Papua B.07 NTT South East Sulawesi 6.09 MALUKU 4.81 2022 " PAPUA 14.38 58#60% 100,0 90,0 Taxes Information and Communication Construction I Agriculture, Forestry, and Fishery Source: Central Bureau of Statistics of Indonesia (BPS), calculated 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Other Services Transportation and Warehousing Manufacturing Q1-2020 Q2-2020 Q3-2020 Q4-2020 17,5 17,6 17,8 18,0 18,2018,618,60 18,41 18,35 18,6 19,0 18,83 19,1 19,8 19,2 18,4 18,5 17,00 18,1 18,0 17,0 16,53 80,0 70,0 3,49 3,46 3,72 3,88 3,86 3,73 3,60 3,61 3,57 3,50 3,57 3,53 3,63 3,93 4,42 60,0 50,0 9,13 9,09 9,35 9,49 9,86 4,03 4,19 4,20 4,15 4,24 4,70 4,44 4,32 4,56 4,51 4,58 4,42 4,26 3,52 3,62 3,78 3,77 3,96 4,25 4,66 4,56 5,02 5,20 5,41 5,38 5,57 5,17 3,58 4,39 13,46 13,61 13,21 13,21 13,43 13,30 13,19 13,02 13,02 13,01 13,19 12,82 12,81 4,12 4,34 4,34 4,14 4,57 4,67 4,51 4,58 4,44 4,47 4,27 4,21 4,37 3,90 4,28 4,41 4,56 4,24 4,62 4,34 4,10 4,79 12,84 12,92 13,08 13,08 13,02 12,71 12,97 13,09 12,71 10,21 10,38 10,38 10,53 10,75 10,70 10,56 10,60 40,0 10,95 10,71 10,79 10,12 10,39 10,48 10,44 10,42 9,14 22,04 21,76 21,45 21,03 21,08 30,0 20,99 20,52 20,16 19,86 19,70 19,98 19,86 19,85 19,80 19,87 19,83 19,29 19,15 17,84 18,80 19,25 19,19 20,0 10,0 10,46 11,81 11,61 11,01 9,83 7,65 7,18 7,58 8,08 7,26 6,82 13,93 13,51 13,37 13,36 13,34 13,49 13,48 13,16 12,81 12,71 12,84 15,45 14,67 11,97 13,70 13,23 14,29 14,32 11,39 13,28 12,56 12,98 6,28 6,16 6,48 6,44 7,64 8,09 9,55 10,43 8,98 10,48 13,06 Indonesia's GDP Share (%) Economic Performance in Most Sectors Continue to Improve Strong national economic growth is driven by increasing domestic demand, particularly household consumption, amid persistently solid export performance. National economic improvements are also reflected in stronger growth of most economic sectors, led by Manufacturing, Transportation and Storage as well as Wholesale and Retail Trade. 2020 Q1-2021 Q2-2021 Q3-2021 Financial and Insurance Services Wholesale and Retail Trade Mining and Quarrying Q4-2021 2021 Q1-2022 Q2-2022 59 59#61Stronger Fundamentals Facing the Headwinds Inflation Rate (%) Inflation controlled within the target range 1998 2008 12.1 Aug 2022 4.69 (yoy) 1998 82.4 IDR Movement (%) IDR depreciated year-to-date -197 2008 -35 21 Sep 22 -4.97 (ytd) -300 -200 -100 0 1998 Non-Performing Loan/NPL (%) NPL level (gross) is below the maximum threshold of 5% 30 50 2008 3.8 July 2022 2.90 0 5 10 15 20 20 External Debt (Public & Private) to FX Reserve Ratio Significantly lower than 1998 crisis 25 30 30 35 40 Government Debt/GDP Consistently well-maintained Foreign Reserves (USD bn) Significantly higher than 1998 & 2008, ample to cover 6.10 months of import and external debt repayment 1998 2008 17.4 50.2 132.2 Aug 2022 More Liquid Market (%) Overnight interbank money market rate 62 is relatively lower 10.5 2.90 1998 2008 Aug 2022 External Debt/GDP Higher than 2008, but significantly lower than 1998 8.6x 3.1x 3.03x 100.0% 27.4% 38.3% 116.8% 33.2% 31.8% 2008 Jul-2022 2008 1998 Aug.2022 2008 Q2-2022 1998 1998 60 60#62Outlook of Domestic Economy Remains Robust ...the domestic economic recovery is continued to strengthen in 2022 2022 Economic Outlook ● Bank Indonesia projects economic growth in 2022 to accelerate to 4.5-5.3% in 2022. ● Bank Indonesia projects inflation in 2022 beyond the upper limit of the 3.0%±1% target. Inflation is expected to return to the target corridor in the second semester of 2023. • Bank Indonesia projects current account deficit of approximately in the range surplus 0.3% to deficit 0.5% of GDP in 2022. Bank Indonesia projects credit growth in 2022 will be around 9.0-11.0% LOAN Π Rp Economic Growth Inflation CAD (% of GDP) Credit Growth 2018 Realisation 5.17% 3.13% 2.98% 11.75% 2019 5.02% 2.72% 2.71% 6.08% Realisation 2020 -2.07% 1.68% 0.4% -2.4% Realisation 2021 3.69% 1.87% surplus 0.3% 5.24% Realisation 2022 4.5-5.3% > 3.0±1% surplus 0.3% - 9-11% deficit 0.5% Source Bank Indonesia 61#63Section 4 External Factor: Improved External Resilience BHINNEKA TUNGGAL IKA#64Amidst Escalating Uncertainty Risk Of Global Economy, Budget Will Be Optimized As Shock Absorber Amid increasing commodity prices and escalating uncertainty risk of global economy "The Budget must be Vigilant, Anticipative, Responsive" The Budget as Shock Absorber Momentum of Strengthening Fiscal Resilience Maintaining priority expenditures (strengthening productivity and national economic foundation) Preparing fiscal buffer to anticipate uncertainty Controlling inflation and maintaining people's purchasing power Maintaining momentum of recovery (alleviating unemployment & poverty) Expenditure Optimization: Subsidies, Compensation, Social Protection, and priority spending (infrastructure, health, education and support for structural reforms) Source: Ministry of Finance Maintaining Budget Health in the Middle & Long term Rp Strengthening foundation for fiscal consolidation and sustainability FISCAL CONSOLIDATION AND REFORM 63#65Strong Budget Performance Continued In 2022 Revenue is very strong supported by the economic recovery and global commodity prices, while higher expenditure aims to anticipate the increasing of energy subsidy and compensation 2021 2022 Revised Account (IDRT) YTD Audited Budget % of Budget Growth Budget 31 Aug (%) (Perpres 2022 % of Perpres 98/2022 Growth (%) 98/2022) A. Revenue 2,011.3 115.4 22.1 2,266.2 1,764.4 77.9 49.9 I. Tax Revenue 1,547.8 107.2 20.4 1,784.0 1,378.0 77.2 53.8 1. Tax 1,278.6 104.0 19.3 1,485.0 1,171.8 78.9 58.1 2. Custom & Excise 269.2 125.2 26.4 299.0 206.2 69.0 30.5 II. Non-Tax Revenue 458.5 153.8 33.4 481.6 386.0 80.1 38.9 B. Expenditure 2,786.4 101.3 7.4 3,106.4 1,657.0 53.3 6.2 I. Central Government 2,000.7 102.4 9.1 2,301.6 1,178.1 51.2 8.3 II. Regional Transfer & Village 785.7 98.8 3.0 804.8 478.9 59.5 1.3 Funds C. Primary Balance (431.6) 68.2 (31.9) (434.4) 342.1 (78.8) 301.5 D. Surplus (Deficit) (775.1) 77.0 (18.2) (840.2) 107.4 (12.8) 128.0 % to GDP (4.57) 80.2 (5.6) (4.50) 0.6 E. Financing 872 86.6 (27.0) 840.2 286.8 34.1 (46.0) F. Financing Surplus 96.67 394.2 Source: Ministry of Finance The Government revenues grew significantly, supported by increased economic activity, the impact of the implementation of the Law on Intergovernmental Transfer, and rising commodity prices. The government expenditures are directed towards the distribution of various social assistance & subsidies, funding for national strategic projects, as well as economic recovery programs, including Transfers to Regions. The Budget Surplus and Primary Balance are still within the responsive corridor to face market pressures and the dynamics of the budget Budget Financing is managed efficiently and carefully amidst global economic uncertainty. 64#66Revenue Collection Continued To Strengthen Supported by high commodity prices, stronger economic activity and gain from the recent tax reforms Share Performance (cumulative) Tax Revenue January-August (Rp Trillion) Realization -O-growth (yoy) 49,4% Manufacturing 29,7% 12,6% 58.1% Trade 66,3% 23,7% 16,3% 15,2% Finance 10,9% 9.5% -2,9% 1,171.8 0.2% 233,8% -15.6% Mining 8,9% 8,2% 802.5 741.3 10,0% 676.9 Construction 4,1% -7,4% Information & 18,2% 3,6% Communication 11,6% 25,0% Transportation 3,6% 2,2% Business 24,1% 2019 2020 2021 2022 2,9% Services -4,6% Jan-Aug 2022 Jan-Aug 2021 The outstanding tax revenue collection in January-August 2022 was driven by: • The trend of increasing commodity prices; Expansive economic growth; • Low base in 2021 due to fiscal incentives; . Impact of the implementation of the HPP Law. Source: Ministry of Finance • • The best performing sectors in the economy (i.e. manufacturing, trade, and mining) are also translated into the tax revenue and recorded the highest growth among sectors. Much improved economic recovery and activities are also reflected in all sectors of tax receipts, which significantly grew higher compared to the same period last year. 65#67Implementation Of The Tax Reform (The HPP Law No.7/2021) 1 VAT Trading Through Electronic System (PPN PMSE) 2 Total 127 PMSE Total VAT PMSE IDR8,17 T Jul-Dec 2020 51 3,90 3,54 Jan-Dec 43 2021 0,73 Jan-Aug 2022 33 Jul-Dec Jan-Dec Jan-Aug 2020 2021 2022 3 Fintech Tax - P2P Lending 4 (valid on May 1, starting to be paid and reported in June) Income tax 23 on loan interest received by Domestic taxpayers and Permanent establishment Income tax 26 on loan interest received by Foreign taxpayers and Permanent establishment Source: Ministry of Finance IDR74,44 B IDR32,81 B Impact of VAT Rate Adjustment (valid on April 1) Trillion IDR 7,15 7,28 6,25 5,74 1,96 Apr May Jun Jul Aug Crypto Tax (valid on May 1, starting to be paid and reported in June) Income tax 22 on Crypto Asset Transactions through Domestic Trade Operators Through Electronic Systems (PPMSE DN) and self-deposit Domestic VAT on collection by Non- Treasurers IDR60,76 B IDR65,99 B 66#68Custom & Excise Revenue Realization Significantly Grew Driven by the trend of improving national import performance, high commodity prices, increasing export volume, and the effectiveness of tariff policies 18.6 Excise Revenue (IDR T) Import Duty Revenue (IDR T) Export Duty Revenue (IDR T) 32.6 892.7 21.2 11.8 17.7 (5.2) (9.6) 338.1 6.1 (7.1) 83.4 89.0 94.4 111.1 135.0 23.8 21.6 24.1 32.0 2.1 1.9 18.9 34.7 2019 2020 2021 2022 2019 2020 2021 2022 2019 2020 2021 2022 Growth (%) Import Duty (IDR Trilion) Growth (%) Growth (%) Excise (Trillion IDR) Influenced by the effectiveness of the tariff policy, the surge in production in March (the effect of the increase in VAT rates) and the effectiveness of supervision. Source: Ministry of Finance Notes: Realization up to YTD August Affected by the improved import performance and underpinned by trade and manufacturing sectors. Export Duty (Trillion IDR) Driven by high commodity prices, the increase in export duty tariffs for palm oil products, and the Flush Out policy. 67 62#69Non-tax Revenue Grew Strongly Supported By An Increase Almost In All Components Driven by the increase in commodity prices, good performance SOES, and improvement of public services Non-Tax Revenue (IDR T) Non-Tax Revenue by Component (IDR T) 162.4 2022 386.0 Natural Resources 21.2% 83.1 66.8 99.8 38.9 28.8 35.0% 2021 277.8 SOE Profit Transfer 61.0 72.5 57.3 23.5% 74.9 Public Service Agency revenue 38.4 2020 232.2 28.2 2019 268.2 Notes: Realization up to YTD August Source: Ministry of Finance 127.3 40.0% 90.9 Others 66.0 67.8 12022 2021 2020 2019 95.4% 68 88#70Maintained Acceleration Of Government Spending The success of controlling Covid-19 reduces overall costs and increases capacity for other government spending 89.7 Personnel Spending (IDR T)1 Material Spending (IDR T)1 Capital Spending (IDR T) 1 175.0 Material Spending PEN Program I Capital Spending | Project Carryover 150.0 170.0 300.0 Pre-Employment Card Realization (IDR T)1 IDR 9.9 T 165.0 100.0 200.0 131.4 60.9 18.5 170.5 160.0 166.4 41.2 162.7 100.0 50.0 160.5 173.7 161.1 84.2 87.4 117.8 123.8 63.0 58.6 155.0 0.0 0.0 Realization Social Assistance1 2019 2020 2021 2022 2019 2020 2021 2022 2019 2020 2021 2022 IDR 261.8 T Health Spending (IDR T)1 Subsidy Spending (IDR T) 1 Realization (16 Sept 22) Cash Transfer ID R6.2 T Wage Subsidy IDR2.62T Compensation (IDR T)1 150 400.0 400.0 293.5 100 77.3 283.7 300.0 12.7 35.8 207.0 50 200.0 61.0 79.3 63.2 63.3 200.0 139.8 119.7 91.1 104.8 0 95.3 100.0 55.0 48.0 7.5 18.5 2019 2020 2021 2022 0.0 0.0 2019 2020 2021 2022 Regular Covid-19 2020 2021 2022 Notes: Realization up to YTD Aug Source: Ministry of Finance Subsidy Realization as of 31 Aug Budget 34 Budget Compensation Ceiling ■Realization 69#71Up To Aug 2022, Transfer To Region Performance Was Improved Local Government Budget performance needs to be optimized, as the local gov't saving remains higher 2022 2021 REVENUE Revenue Sharing (DBH) General Allocation (DAU) ■Physical Special Allocation (DAK Fisik) • Local Gov't revenue was dominated by local tax (71.4%). Local tax performance was improved and grew high return to pre-pandemic level. Tax on consumption goods booked excellence performance along with economic recovery Source: Ministry of Finance IDR 478.89 T (59.5% from budget) IDR 472.91 T (59.4% from budget) -0.5 % • Local government compliance on meeting administrative requirements have improved, driving higher realization on various items of transfer. • Several items of transfer realization, such as DID was lower compared to previous year, mainly due to lower budget allocation. Local Gov't Performance 2022 Others Revenue Return of Local Gov't SPENDING . Up to Aug, local Gov't spending was recorded lower 1.7% compared to previous year. The biggest decline was contributed by other expenditures The spending reached 44.9% to local budget. 2021 Personnel ■Capital Exp 2022 ■Operational Other Exp 2021 70 10#72Budget Financing Apply Prudent, Flexible, And Opportunistic Principle Financing anticipating the ongoing volatility Financing Realization Up To 31 Aug Government Securities (Net) 552.6 20.2% Loan 331.2 (Net) 567.4 317.3 (40.1%) 35.1% from budget* 15.5% -14.8 13.8 (44.1%) 171.9% (193.3%) 2021 2022 IDR 317.3 T IDR13.8 T Domestic Loan (Nett) IDR 2.4 T Domestic Loan Withdrawal (Gross) IDR 3.5T Domestic loan principal installment financing IDR (1.1T) Foreign Loan (Nett) IDR 11.5 T Foreign Loan Withdrawal (Gross) IDR 57.4T Foreign loan principal installment financing IDR (45.9T) I Loan (nett) Securities (nett) INVESTMENT FINANCING REALIZATION: IDR 55.0 T* *up to 31 Aug 2022 Lembaga Manajemen Aset Negara State Asset Management Agency (LMAN) IDR20T FLPP Housing Finance Liquidity Facility (FLPP) IDR 11T Governance is improved with the Key Performance Indicator (KPI) of Investment Financing LDKPI International Development Fund Cooperation Agency (FLPP) IDR 1 T Education Fund Management Agency (LPDP) IDR 20 T Disbursement of Investment Financing allocation is based on performance and priority analysis Source: Ministry of Finance 71#73Energy Subsidy Has Been Adjusted To Absorb The Global Inflationary Shocks The Government budget has been optimized to absorb the inflationary shock . The energy subsidy has been raised to absorb the inflationary shocks in order to safeguard recovery momentum. Revenue windfall on the back of high commodity prices provides space to absorb the inflationary shocks. However, continue raising energy subsidy will jeopardize fiscal sustainability. The Government decided to raise domestic retail fuel prices which could ease budget pressures, especially in 2023, as the Budget is transitioning toward consolidation. Energy Subsidy Allocation 2022 2023 152 502 (Rp Trillion) 698 2022 Budget 2022 Revised Outlook 2022 649.5* Note: Energy Subsidy Outlook after Fuel Price Adjustment Source: Ministry of Finance Retail Fuel Price Adjustment (Rp/litre) 14,500 (16%) 12,500 10,000 (31%) 9,000 7,650 6,800 (32%) 339.6 5,150 PERTALITE -PERTAMAX - DIESEL Budget 2023 72#74While Easing Budget Pressures, Fuel Price Hike Is Aimed At Improving Equality & Targeting While safeguarding medium-term fiscal health Bigger portion of fuel consumption and subsidy were enjoyed by richer households (HH) Top 60% HH Bottom 40% HH Diesel Consumption by HH 5% Additional burden per household of the Top 60% is significantly higher than the Bottom 40% Total reallocated budget from subsidy and compensation IDR 50 Trillion Borne by Top 60% IDR 42.2 T (84.0%) The Government enhanced the social protection program to improve the effectiveness of the intervention program Total additional budget to cushion the purchasing power of lower income HHS IDR 24.17 Trillion CASH TRANSFER IDR12.4 trillion budget allocation for 20.65 million poor & vulnerable households 95% Pertalite* Consumption by HH 20% 80% Borne by Bottom 40% HHs IDR 8.1 T Poorest 2 (16.0%) m 4 Source: Statistics Indonesia, Ministry of Finance processed from SUSENAS *Pertalite is RON-90 gasoline sold by Pertamina Source: Ministry of Finance 5 11 8 6 Richest WAGE SUBSIDY IDR9.6 trillion budget allocation for 16 million workers with max income of Rp3.5 million/month LOCAL GOVT SUPPORT 2% of subnational general transfer fund. Total estimation Rp2.17 trillion targeted for social protection and interventions to stabilize inflation 73#75Transforming Subsidy From Commodities Based Into Targeted People In 2023 The policy will be taken gradually and very carefully, depend on the updated social and economic recovery. م Transformation Concept Getting the Price Right Applying an efficient market price on LPG and electricity for the beginning step. Existing Condition Not targeted subsidy benefits the higher income household thus considered regressive (inclusion error); Social assistance program mechanism reduces the inclusion error, thus considered more effective at alleviating the poverty and inequality. Protect the Poor Certain amount of assistance is provided for the targeted beneficiaries. The amount is given in fix value that is enough to maintain their energy consumption level. * Exit Strategy Transforming energy subsidy from commodity based into targeted subsidy or social assistance program Transforming LPG subsidy from commodity based into targeted subsidy or social assistance program for the poor and vulnerable households. ☑ Implementing targeted electricity subsidies for R1 450 VA, accompanied by a tariff adjustment policy for non-subsidized customers Transforming LPG and electricity subsidies that are integrated with the social assistance gradually, in line with the readiness of data and infrastructure. Source: Ministry of Finance 74#762023 Budget Was Prepared With Optimism And Remaining Vigilant Aiming to increase productivity for an inclusive and sustainable economic transformation QUALITY OF HUMAN CAPITAL INFRASTRUCTURE Fiscal Policy Focus in 2023 BUREAUCRACY REFORM Strengthening Budget Role For Quality Fiscal Consolidation REVENUE MOBILIZATION Maintaining the effectiveness of the implementation of tax reform law Strengthening tax base and increasing taxpayer compliance Anticipating economic downturn and commodity prices moderation in 2023 SPENDING BETTER Efficient, effective, priority, transparent, and accountable Focusing on human capital, physical capital, and institutional reform Anticipating uncertainty INNOVATIVE AND SUSTAINABLE FINANCING Well-managed debt risk Increasing the involvement of private sector, SOES, public service agency, innovative financing agency Source: Ministry of Finance (348.7) -2.2 2019 (73.1) (947.7) -6.14 (633.6) INDUSTRY REVITALIZATION GREEN ECONOMY 2020 (775.1) (431.6) 2021 2022 outlook 2023 (328.4) (732.2) -4.57 -3.92 Deficit (IDR T) Primary Balance (IDR T) (156.8) (598.2) -2.84 75#772023 Government Budget To Increase Productivity And Respond To Risks of Global Economic Uncertainty The budget deficit is back below 3 percent and for the first time the tax target is above IDR 2 thousand trillion 2020 2021 5.0 5.1 5.0 5.2 5.3 Account (IDR T) Audited Audited Budget 3.7 State Revenue* Tax Revenue 1,647.8 1,285.1 2,011.4 1,846.1 1,547.9 1,510.0 2022 Perpres 98/2022 2,266.2 1,784.0 2023 Outlook Budget Growth* (%) 2,436.9 1,924.9 2,021.2 2,463.6 1.1 5.0 -1.8 Non Tax -2.5 -2.2 343.8 -2.8 Revenue 458.5 335.6 481.6 510.9 441.4 (13.6) (269.4 -4.6 State (341.0) ) -2.1 (348.7) Expenditure 2,595.5 2,786.4 2,714.2 3,106.4 3,169.1 3,061.2 (3.4) Central -6.1 (598.2) Government 1,833.0 2,000.7 1,944.5 2,301.6 2017 2018 2019 2020 (775.1) (732.2) 2,370.0 2,246.5 (5.2) Expenditure (947.7) Regional 2021 2022 Outlook 2023 Budget Transfer & 762.5 785.7 769.6 804.8 799.1 814.7 2.0 Village Funds Primary Balance (633.6) (431.6) (462.2) (434.4) (328.4) (156.8) (52.3) Surplus (Deficit) (947.7) (775.1) (868.0) (840.8) (732.2) (598.2) (18.3) Deficit (IDR Triliun) Economic Growth (%) -Deficit to GDP (%) % to GDP (6.14) (4.57) (4.85) (4.50) (3.92) (2.84) Financing 1,193.3 871.7 868.0 840.2 732.2 598.2 (18.3) Economic Growth Inflation Exchange Rate 10Y T-Bonds Rate 5.3% 3.6% IDR 14,800/USD 7.9 % ICP 90 USD/Barrel Oil Lifting 660 Thousand bpd Gas Lifting 1,100 million bpd Source: Ministry of Finance Note:*% Growth of 2022 Budget Outlook 76#78Optimizing Government Revenue And Maintaining The Investment Climate Continuing tax reform, service innovation, and optimizing asset management 12.3 13.1 12.4 Government Revenue 11.9 13.0 11.7 10.7 441.4 510.9 409.3 409 458.5 311.2 343.8 1924.9 2021.2 1518.8 1546.1 1547.8 1343.5 1285.1 2017 2018 2019 2020 2021 Tax Revenue (IDR T) Non-Tax Revenue (IDR T) 2023 Tax Policies 1. Maintaining the effectiveness of the tax reform (HPP Law) implementation. 2. Increasing taxpayer compliance by providing fiscal incentives for strategic economic activities that have a strong multiplier for the economy. 3. Tax extensification and intensification to strengthen the tax base and increase taxpayer compliance. 4. Optimization of customs & excise through extensification, strengthened supervision, and law enforcement. 2022 Outlook -Government Revenue (% of GDP) 2023 Budget 2023 Non-Tax Revenue Policies 1. Increasing service innovation, strengthening governance, and optimizing productive asset management. 2. Optimizing the management of revenue from natural resources by considering the moderated commodity prices. 3. Improving the performance of SOES. 4. Expansion of digitization, integration, and service synergy as well as innovation of public services investment funding. Source: Ministry of Finance 77#792023 Budget Priority To Support Structural Reform BUDGET DEVELOPMENT ON PRIORITY PROGRAM (IDR TRILLION) Covid-19 Pandemic 612.2 479.1 EDUCATION ✓ To create competitive human capital ✓ Increasing access by strengthening compulsory study and expanding access to underdeveloped regions ✓ Levelling the quality of education across region ✓ Renovation and revitalization education infrastructure ✓ Improving teaching factory model SOCIAL PROTECTION 392 ✓ Improving data and targeting system on social protection and subsidy distribution ✓ Empowering the poor to escape from poverty 169.1 ✓ Strengthening social protection for all age ✓ Strengthening adaptive social protection SOCIAL PROTECTION ✓ Acceleration on basic infrastructure project ✓ Infrastructure and IT access equal distribution Developing infrastructure to support economic transformation 2013 2014 2015 2016 2017 2018 2019 2020 2021 Outlook 2023 2022 ✓ ✓ Integrating financing between government and PPP scheme Supporting the strategic national project Education Health Infrastructure Social Protection % to total 20% 5% 14% 14% budget (avg 2013-2023) Source: Ministry of Finance HEALTH ✓ Declining health spending due to the decreasing of Covid-19 handling budget ✓ To support health system transformation: focusing on preventive measures ✓ Strengthening universal health insurance and premium subsidy (PBI) for the poor ✓ Acceleration reducing stunting prevalence program ✓ increasing the vigilance of health services 78#802022 Budget Financing Economic Recovery and Structural Reform Description (IDR Trillion) Budget 2022 Perpres 98/2022 A. State Revenue 1,846.1 2,266.2 1. Tax Revenue 1,510.0 1,784.0 Non-tax Revenue 335.5 481.6 Macroeconomic Assumption for 2022 Budget ע Economic Growth 5.2% ICP US$ 63 per barrel Oil Lifting 703 thousand barrel/day 3. Grants 0.6 0.6 B. State Expenditure 2,714.2 3,106.4 Inflation 3.0% Central Government 1. 1,944.5 2,301.6 Expenditure Regional Transfer & 2. 769.6 804.8 Village Fund Exchange Rate 14.350 IDR/USD C. Primary Balance (462.2) (434.4) D. Surplus (Deficit) (868.0) (840.2) oil equivalent/day 10 years T-Bonds % of GDP (4.85) (4.50) E. Financing 868.0 840.2 Rate 6.80% Gas Lifting 1.036 thousand barrel of The main points of fiscal policy : (1) Consolidating economic recovery while still prioritizing the handling of the health sector as the key to economic recovery; (2) Social protection programs that strengthen the foundations of social welfare, alleviate poverty and vulnerability, including strengthening the leverage of MSMEs and the business world to be able to rise again stronger and more resilient; (3) Supporting increased competitiveness and productivity by implementing structural reforms (UU Cipta Kerja) and fiscal reforms; and (4) Optimizing revenue and strengthening spending better, both in the Central Government and in regional governments, as well as financing innovations in the context of equitable and sustainable fiscal consolidation. Source: Ministry of Finance 79#81Budget Financing Apply Prudent, Flexible, And Opportunistic Principle Financing anticipating the ongoing volatility Financing Realization Up To 31 July Government Securities IDR 223.9 T (Net) 468.8 9.5% Loan IDR13.9 T 236.9 (Net) 487.4 (49.5%) 25% from budget* 2021 5.1% 223.9 -18.7 13 (54.1%) 502.7% 2022 (169.7%) Domestic Loan (Nett) IDR 2.2 T Domestic Loan Withdrawal (Gross) IDR 3.1 Domestic loan principal installment financing IDR (0.9) Foreign Loan (Nett) IDR 10.8 T Foreign Loan Withdrawal (Gross) IDR 54.3 Foreign loan principal installment financing IDR (43.4) Loan (nett) INVESTMENT FINANCING REALIZATION: IDR 50.0 T* *up to 31 July 2022 Lembaga Manajemen Asat Negara State Asset Management Agency (LMAN) IDR10T FLPP Housing Finance Liquidity Facility (FLPP) IDR 7T Source: Ministry of Finance LDKPI International Development Fund Cooperation Agency (FLPP) IDR 1 T Education Fund Management Agency (LPDP) IDR 1 T Governance is improved with the Key Performance Indicator (KPI) of Investment Financing Disbursement of Investment Financing allocation is based on performance and priority analysis 88 80#822022 Financing Needs President Regulation no.98/2022 Budget Deficit 2022 IDR840.2 T Outlook: IDR732.2T (Outlook: 3,92% of GDP) Investment financing Lending Liabilities Other financing Matured debt Source: Ministry of Finance GROSS GS Financing Source Foreign Denominated Debt (18%-20%) Domestic Debt (80% - 82%) Foreign Loan Foreign Denominated Bonds Domestic Loan Domestic GS (Through auction & non-auction) GDS Sukuk 69%-72% 28% -31% + 2022 Matured T-Bills Issuance 81#83Deficit Financing 2022 Through Net SBN Issuance IDR Trillion -2.2 -348.7 2019 Deficit -4.5 -4.6 -775.1 -6.1 -840.2 -947.7 2020 2021 2022*) GDP (%) *) President Regulation no.98/2022 Source: Ministry of Finance Debt Management Strategy ➤ Prudent Controlling debt risk and managing debt carefully and prudently to support fiscal consolidation and APBN sustainability Portfolio balance Priority for issuance of SBN in the domestic market to control risk ➤Flexibility Optimizing non-debt sources Utilizing cash loans within the framework of flexibility Efficient Market development and deepening (including supporting the issuance of regional bonds/ sukuk) coordination with BI in financing fulfillment 82#84Debt Financing as of August 31, 2022 Budget Financing continues to prioritize prudent, flexible, and opportunistic principles Debt Financing Realization IDR 331.2 (35.1%) Government Securities (Net) IDR 317.3 (33.0%) Loan (Net) IDR 13.8 (-78.2%) Note: 1. 2. all numbers in trilliun Rupiah The percentage is the percentage of budget ceiling from Presidential Decree Number 98 year 2022 Source: Ministry of Finance Domestic loan (Net) IDR 2.4 (134.4%) Foreign Loan (Net) IDR 11.5 (-59.0%) 83 83#85GS Financing Realization 2022 Source: Ministry of Finance (Trillion IDR) Realization (ao. Aug 31, 2022) 670.44 Government Securities (GS) Gross IDR Denominated GDS Government Debt Securities (GDS) 402.49 374.79 - Coupon GDS 271.44 - Conventional T-Bills 53.56 - Private Placement (+ Voluntary Disclosure Program) 10.82 - Retail Bonds 38.98 Foreign Denominated Bonds 27.70 - SEC USD-EUR ( - Buyback LM) 18.40 - Samurai Bond - SDG Bonds - Valas Voluntary Disclosure Program 8.76 0.00 0.53 Sovereign Sharia Securities (Sukuk) 205.68 Domestic Sovereign Sharia Securitoes 158.78 - IFR/PBS/T-Bills Sukuk (Islamic Fixed Rate Bond/Project Based Sukuk 131.24 - Retail Sukuk 18.45 - Private Placement 9.09 Global Sukuk 46.90 BI Purchase (SKB III) 62.27 84#86Republic Of Indonesia USD1.75 Bn Global Bonds Issuance & Liability Management USD1.57bn Investor Breakdown by Region 19% 42% 23% 10Y 16% US Issuer Issuer Rating 34% 40% Format APAC 30Y Pricing Date EMEA 50% AM/FM 8% Settlement Date Republic of Indonesia Baa2 Moody's (Stable) BBB S&P (Negative) BBB Fitch (Stable) SEC-Registered Shelf Take-Down March 22, 2022 March 31, 2022 Investor Breakdown by Investor Type Issue Size USD1,75 bn 3% Tenor 10year 30year Insurance/PF 27 30Y Maturity Tranche Size March 31, 2032 March 31, 2052 USD1,0 bn USD750 milion 9% ■Bariks 65% 65% Coupon (p.a.) 3.550% ■CB/SSAS Price 99.583 Yield (p.a.) Listing 3.600% 10Y Tender Offer Result • On March 29, 2022, Republic of Indonesia announced the results of its second Tender Offer Exercise (the "Tender Offer" or "Liability Management Exercise") launched on nine series of Notes (the "Old Bonds"). • The Republic repurchased a total nominal amount of USD 467,485,000, accepting in full instructions received on its 5.375% Global Bonds due 2023, 5.875% Global Bonds due 2024, and 4.450% Global Bonds due 2024, while applying a pro-ration factor of 21.06% on its 4.750% Global Bonds due 2026. The Republic did not accept instructions received on the other series of the Old Bonds. The total cash consideration amounted to USD 499,999,756. ⚫ The table below sets forth, for each series of Old Bonds accepted for purchase, the principal amount accepted for purchase, and where applicable, the proration factor: OM Bonds Principal Amount Accepted 4.300% 2.360% due 2023 3.375% due 2023 5.375 d. 2023 5.5/5 dac 2024 99.167 4.450% due 2024 4.125% due 2025 4.350% 1.750 due 2025 1.350% due 2027 3. 2007 for Purchase U.3.50 U5.50 US$1,448,00 US8273,55000 LIS $52,152,000 U.3.50 US $80,258.000 U.3.50 LL6.50 Proration Factor NA NA 100% 100 100% NIA 21.05% NA NIA Transaction Highlights • • Skillfully navigated through the challenging market backdrop and a 30-year tranche represents the longest tenor issued by an Asian Sovereign in 2022YTD. Strong orderbook allowing significant price tightening from IPG Source: Ministry of Finance Use of Proceeds Singapore, Frankfurt Stock Exchange To repurchase certain of the Republic's outstanding global bonds pursuant to its tender offer separately announced on March 22, 2022, including related costs and expenses thereof, and any remaining net proceeds for the general purposes of the Republic • This Liability Management Exercise is a part of the Republic's general cash management program and its broader program to manage its external liabilities. This is the second buyback exercise by the Republic in the past 12 months following the first Liability Management Exercise conducted in September 2021 and is in line with the Republic's goals of extending its debt maturity profile and achieving cost savings through the reduction of interest expense. 85#87REPUBLIC OF INDONESIA GLOBAL SUKUK US$3.25bn Summary of Terms & Conditions Issuer Issue Format Country of Transaction Issuer Ratings (M/S/F) Issue Ratings (M/S/F) Pricing Date Settlement Date Tenor Maturity Date Tranche Size Profit Rate Re-Offer Price Reoffer Spread Republic of Indonesia through Perusahaan Penerbit SBSN Indonesia III 144A/Reg S, Senior, Unsecured, Wakala US$ Trust Certificate ("Sukuk") issued under a USD$35 billion Trust Certificate Issuance Programme Indonesia Baa2 stable (Moody's) / BBB stable (S&P)/ BBB stable (Fitch) Baa2 (Moody's) / BBB (S&P) BBB (Fitch) 24 May 2022 06 June 2022 (T+8) 5Y Sukuk 4.40% Fixed, Semiannual, 30/360 6-Jun-27 USD1.75 billion 100.00% UST + 164.4bps US71567PAU49 Orderbook Distribution 5-Year USD US$ 5.7bn+ From 241 accounts Investors by Geography 10Y Green Sukuk 6-Jun-32 17% USD1.50 billion 4.70% Fixed, Semi-annual,30/360 100.00% 18% 30% 35% 15% 20% 10-Year USD US$ 5.1bn+ From 225 accounts General financing requirements 144A ISIN Reg S ISIN US71567RAU05 Use of Proceeds Other Details SGX-ST and Nasdaq Dubai Listing Joint Bookrunners. Co-Managers Achievement USD200k/1k denoms., English / Indonesian Law UST + 193.3bps 27% US71567PAV22 Asia Middle East Europe United States US71567RAV87 In line with ROI's SDGs Government Securities Framework Investors by Type 8% 1% 1% 13% 30% CIMB, Deutsche Bank (B&D), Dubai Islamic Bank, HSBC, and Standard Chartered Bank PT BRI Danareksa Sekuritas and PT Trimegah Sekuritas Indonesia Tbk The largest ever Global USD Sukuk transaction from the Republic The largest Green Sukuk tranche ever printed by the Republic The largest issuance from Indonesia year to date The first Green Sukuk tranche in 10 year maturity by the Republic Transaction Highlights The final order size amounted to US$10.8 bn combined, or an oversubscription 41% 20% 49% Banks CBs/Ols Fund Managers Ins/Pension PBS/Others The green tranche was issued under the 10 year tenor, which is also the largest green want ever issutu by the Republic. This aptly demonstrates the Republic's dedication and commitment to Green and sustainable finance, as well as diversifying financing methods in the effort against climate change. Source: Ministry of Finance 38% 30% 7% 86#88REPUBLIC OF INDONESIA SAMURAI BOND JPY 81.0bn Summary of Terms & Conditions Issuer Expected. Bond Rating Format Pricing Date Settlement Date Deal Size Series Tenor Coupon Tranche Size Re-offer Spread over TONA Yen Mid Swap Joint Lead Arrangers Others International 16% 5% Shirkires, etc. Regional 3yr Life Ins. 10% 5% 20% Certal 63% Regional Republic of Indonesia Baa2 Moody's BBB S&P / BBB Fitch Samurai June 2, 2022 June 9, 2022 JPY 81.0bn RIJPY0625 RIJPY0627 3-year 0.96% 5-year 1.13% JPY 68.2bn JPY 5.1bn RIJPY0629 7-year 1.27% JPY 1.7bn YMS+90 YMS+100 YMS+105 5yr Prop. Ins RIJPY0632 10-year 1.45% JPY 6.0bn YMS+110 Daiwa/Mizuho/Nomura/Morgan Stanley Investor Breakdown by Amount 7yr International 12% Transaction Highlight • • The largest Samurai bond transaction issued in 2022 so far. This deal represents Rol's eighth consecutive year accessing the Samurai market with benchmark sized transaction since 2015 With the global market volatility being high on the back of tightening monetary policies and heighted geopolitical risk, Rol took the strategy to swiftly access to the market by shortening the marketing period Even with the shortened 2-day official marketing period compared to previous issuance, Japanese investors were ready to invest in Rol Samurai and giving order from early stage of the marketing. Orderbook grew solidly during the marketing; the final order book exceeding the issuance size 10yr Total Life: Ire 9% Prop. Ins. International 17% 0.2% City AK 15 AM 22% International 43% Central 21k Shinkins, etc. Regional 33% РК 11% Pub. Funds AM (central) .3% Central Cooperative 15% 20% Source: Ministry of Finance Others Regional BB% Others 99% Others 17 Regional 17% Others 9%% City BVK 12% Regional Central Shinns, etc. 22% 4% Central 6.1% 13% Regional AM 20% BIK AM 9% 83% Pub. Funds (central) 3% Centre Cooperative 12% 87#89GS Primary Market Performance 2021 - 2022 Through Auction In 2022, average incoming bid = IDR37.58 tn/auction, while average awarded bid = IDR13.83 tn/auction [IDR Trillion] Source: Ministry of Finance 450 Incoming Bids 400 350 Average Incoming Bid 2021 - 300 200 150 IDR56.77T/ auction 100 2.27 2.23 2.03 50 Jan-21 - Average Awarded Bid 2021 - IDR18.97T/ auction 44 Awarded Bids % Bid to Cover Ratio (RHS) 8.43 12.17 3.56 3.11 2.73 Feb-21 Mar-21 2.30 1.85 2.96 3.06 3.86 4.92 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Jan-22 Feb-22 2.45 2.24 2.62 2.05 2.08 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 14.00 12.00 10.00 8.00 6.00 4.00 2.00 88#90Ownership of IDR Tradable Government Securities MUTUAL FUND INSURANCE & 3,14% 16,29% PENSION FUND FOREIGN 15,24% INDIVIDUAL 5,86% OTHERS 8,73% Description Dec-18 Dec-19 Dec-20 Dec-21 Banks* 481.33 20.32% 581.37 21.12% 1,375.57 35.54% 1,591.12 34.01% Govt Institutions (Bank Indonesia**) 253.47 10.70% 262.49 9.54% 454.36 11.74% 801.46 17.13% (IDR tn) Aug-22 1,599.35 32.08% 930.41 18.66% 32,08% 18,66% Govt Institution BANK 49,25% NON-BANK Bank Indonesia (gross) GS used for Monetary Operation Non-Banks Mutual Funds Insurance Company and Pension Fund Foreign Holders Foreign Govt's & Central Banks Individual Others Total 217.36 9.18% 273.21 9.93% -36.11 -1.52% 10.72 0.39% 1,633.65 68.98% 1,908.88 69.34% 118.63 5.01% 130.86 4.75% 414.47 17.50% 471.67 17.13% 893.25 37.71% 1,061.86 38.57% 163.76 6.91% 194.45 7.06% 73.07 3.09% 81.17 2.95% 134.22 5.67% 163.32 5.93% 2,368.45 100% 2,752.74 100% 874.88 22.60% 420.51 10.86% 2,040.83 52.72% 161.32 4.17% 542.82 14.02% 973.91 25.16% 178.31 4.61% 1,220.73 26.09% 419.27 8.96% 2,286.40 48.87% 157.93 3.38% 655.24 14.00% 891.34 19.05% 1,290.15 25.88% 359.75 7.22% 2,455.11 49.25% 156.59 3.14% 811.80 16.29% 759.51 15.24% 233.45 4.99% 209.89 4.21% 131.21 3.39% 221.41 4.73% 292.28 5.86% 231.57 5.98% 360.47 7.70% 434.93 8.73% 3,870.76 100% 4,678.98 100% 4,984.87 100% holders reach a record high (63.71% IDR 1.092,02T on January 24, 2020, foreign in nominal terms. Portion of foreign ownership in the mid & long term sector (≥ 5 years). Note: 1) 2) Non Resident consists of Private Bank, Fund/Asset Manager, Securities Company, Insurance Company, and Pension Fund. Others such as Securities Company, Corporation, and Foundation. *) Including the Government Securities used in monetary operation with Bank Indonesia. **) net, excluding Government Securities used in monetary operation with Banks. Source: Ministry of Finance 89#91Holders of Tradable Central Government Securities Balanced Ownership In Terms of Holders and Tenors Holders of Tradable Gov't Domestic Debt Securities Foreign Ownership of Gov't Domestic Debt Securities by Tenor 15.2% 19.0% 25.2% 24.2% 29.4% 29.6% 29.8% 30.0% 27.89% 28.4% 26.9% 27.1% 33.5% 38.2% 37.5% 39.8% 37.7% 38.6% 37.8% 39.9% 36.8% 42.0% 40.3% 46.9% 52.7% 39.3% 34.8% 39.0% 38.4% 37.8% 36.7% 38.52% 36.2% 36.9% 39.5% 35.8% 21.8% 22.1% 22.3% 22.8% 25.2% 23.8% 23.8% 23.1% 18.7% 19.87% 35.5% 34.0% 19.0% 32.1% 18.97% 18.82% 17.57% 17.03% 1 23.9% 22.5% 23.4% 20.3% 21.1% 22.1% 16.56% 16.09%- 15.65% -15.24% 10.3% 10.2% 10.14% 9.9% 8.7% 8.6% 4.0% 4.8% 5.3% 5.1% 4.6% 3.0% 2.9% 4.1% 4.3% 3.59% 4.8% 4.9% 5.0% 5.0% T I | I | Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Aug-22 Dec-20 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Foreign Holders ■Domestic Non-Banks Domestic Banks 0-1 >1-2 1>2-5 >5-10 >10 →% Foreign Ownership of Total Source: Ministry of Finance 90 90#92Disciplined and Advanced Debt Portfolio Management Stable Debt to GDP Ratio Over the Years Prudent Fiscal Deficit IDR Tn Government Debt / GDP (%) 1,500 40.7% 39.4% 8,000.00 38.3% 41% 1,000 7,000.00 36% 29.4% 29.8% 30.2% 811.05 819.86 31% 442 446 6,000.00 500 358 852.91 26% 5,000.00 14 21% 4,000.00 764.48 810.74 746.32 3,000.00 2,000.00 1,000.00 3,248.93 3,612.69 4,014.80 5,221.65 6,091.85 6,425.55 (20)56) [6] (9)(35) 16% (269) (500) (341) (319) 11% -1.80% -2.50% -2.20% 6% (1,000) 1% (1,500) -4% 2017 2018 2019 2017 2018 2019 2020 2021 Aug-22 IGS Nett ILoan Nett Non Ucbt Bond ■Loan -Debt to GDP Weighted Average Debt Maturity of ~8.58 years 8.68 2017 8.37 8.52 8.5 10% 1,177 8% 878 G 4% 296 53 (36) (10) U -2% -4% [784] (948) 4.65% -6% -6.14% 2020 -8% 7021 Surplus (Deficit] Budget --Ratio Deficit to GDP Well Diversified Across Different Currencies % of Yearly Issuance 1% 1% 1% 1% 1% 6% 6% 5% 8% 5% 5% 5% 4% 8.6 29% 30% 27% 23% 20% 21% 8.52 59% 58% 62% 66% 70% 71% 2018 2019 2020 2021 Aug-22 2017 2018 2019 2020 2021 Aug-22 IDR ■USD EUR JPY ■OTHER 91 Source: Ministry of Finance#93Well Balanced Maturity Profile with Strong Resilience Against External Shocks Interest Rate Risks (%) VR Prop Non SKB VR Prop SKB Declining Exchange Rate Risks (%) 6.6 8.9 9.4 12.1 12.2 10.6 10.6 9.8 7.6 7.4 7.7 41.3 41.0 37.9 33.5 30.0 28.9 H 2017 2018 2017 2018 2019 2020 2021 Agustus 2022 Debt Maturity Profile IDR tn 173 173 165 174 193 11.4 13.2 12.2 11.08 2019 2020 FX to GDP Ratio ■FX Proportion Upcoming Maturities (Next 5 Years) 2021 Aug-22 41.9 40.4 41.0 39.3 39.6 40.1 IDR Denominated (Triliun Rp) Other Currencies (Triliun Rp) 25.0 25.5 24.3 22.8 22.8 23.6 146 116 113 82 112 512 474 385 409 442 32 332 275 278 50 12 41 54 226 216 123 154 28 33 4 31 111 by 87 69 3 143 3 129 42 28 21 2022 2023 2024 2025 2026 2027 2028 Source: Ministry of Finance 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 9.9 10.6 8.1 7.8 2042■ 2043 2044 2045 w 36 24 32 32 20 39 27 178 6.4 7.1 76 46 69 42 2046 2047 2048 2049-2071 2017 2018 2019 2020 2021 Aug-22 1 Year 3 Year 5 Year 92 2#94Strengthened Synergy Between Monetary and Fiscal Policy Background The increase in the spread of Covid-19 including the delta variant requires large financing, among others, for handling health and humanity as a result of the COVID-19 pandemic 2. The government and Bank Indonesia (BI) are coordinating solidly, in which BI actively participates in the purchase of SBN in the primary market, including the contribution to health and humanitarian financing. 3. The agreement between the Government and Bl is stated in the Joint Decree of the Minister of Finance and the Governor of Bank Indonesia concerning the Scheme and Coordination Mechanism between the Government and Bank Indonesia in the Context of Financing for Health and Humanitarian Management to Handle the Impact of the Corona Virus Disease 2019 (COVID-19) Pandemic through Purchases in the Market Initial by Bank Indonesia on Government Securities and/or Government Sukuk (or referred to as SKB III) Principles 1. Maintaining fiscal space and fiscal sustainability in the medium term 2. Reduce the APBN deficit gradually below 3% in accordance with the provisions of the legislation 3. Maintaining the exchange rate stability, interest rate and inflation under control 4. Prioritizing credibility and integrity of fiscal and monetary management 5. Encouraging sustainable economic growth Maintaining financial sustainability of the Government and Bank Indonesia 6. Source: Ministry of Finance 33 93#95Strengthened Synergy Between Monetary and Fiscal Policy Policy Synergy Between Bank Indonesia and the Government Contributes to the Acceleration of Economic Recovery The Enactment of Emergency Law No.1/ 2020 (Becoming Law No.2 / 2020) Allows BI to Buy GS in the Primary Market 1st Joint Decree between Minister of Finance and Governor of Bank Indonesia (BI) on April 16, 2020 (SKB I). The role of Bl is to act as backstop buyer in the primary market 2nd Joint Decree between Minister of Finance and Governor of BI on July 7, 2020 amended with Joint Decree on July 20, 2020 (SKB II) puts in place the burden sharing scheme between Government and Bl 3rd Joint Decree Between Minister of Finance and Governor of BI on August 23, 2021 (SKB III) The Third Joint Decree concerns the scheme and coordination between the Government and Bank Indonesia in the context of financing healthcare and humanitarian handling as a response to the current condition of the COVID-19 pandemic GOVERNMENT SECURITIES (SBN) ISSUANCE AND BI CONTRIBUTION SCHEME Bl contributes all interest costs on the financing for vaccination and healthcare with a maximum amount of IDR58T (2021) and IDR40T (2022), taking into account Bl's balance sheet capacity and capability Cluster A Cluster A : 2021 IDR58 T 2022 IDR40 T Healthcare includes vaccination program and other healthcare financing related to COVID-19 pandemic Interest Rate Bl reverse repo 3 Months Tenor Healthcare related to COVID-19 pandemic other than Cluster A Humanitarian handling in the form of various protection programs for affected communities/ small businesses BANK INDONESIA Interest Rate BI reverse repo 3 Months Tenor GOVERNMENT The issuance of Government Securities is done through a private placement: reducing the target for SBN auction and manage cost of debt All Government Securities are issued at variable rate using BI 3-month Reverse Repo Interest Rate. SBN is tradable and marketable The remaining interest costs for financing other health care as well as humanitarian handling will be covered by the Government with a reference interest rate for Bl RR 3M (below market rate) Cluster B : Cluster B 2021 2022 IDR157 T IDR184 T • Source: Ministry of Finance, Bank Indonesia 94#96Section 6 Monetary and Financial Factor: Credible Monetary Policy Track Record and Favourable Financial Sector BHINNEKA TUNGGAL IKA#97. • . • 0 Bank Indonesia's Policy Mix Synergy Maintaining Stability and Strengthening National Economic Recovery Policy rate hike as a pre-emptive and forward-looking measure to mitigate the risks posed by rising core inflation and inflation expectations caused by higher non-subsidized fuel prices and a build-up of inflationary pressures on volatile food Strengthening exchange rate policy to maintain Rupiah stability in line with the market mechanism and economic fundamental. Accelerating liquidity policy normalization by incrementally raising Rupiah reserve requirements Continuing the strengthening strategy for monetary operations to reinforce the effectiveness of the monetary policy transmission, and increasing the attractiveness of short-term SBN portfolio investment and creating a flatter long-term SBN yield structure Controlling inflation through Inflation Control Team in national and regional level, and accelerating implementation of the National Movement for Food Inflation Control (GNPIP) Support the State Budget through SBN purchases in the primary market while maintaining macroeconomic stability Support the national economic recovery program through cooperation and collaboration with the MOF Strengthening the coordination with the Government and related authorities to revive bank intermediation function Strengthening policy coordination with the Government and Financial System Stability Committee to maintain macroeconomic and financial system stability Monetary Policy • 2 Macro- prudential Policy BB BANK INDONESIA Coordinatio n with other Authorities 5 Accelerating foreign exchange market deepening to support rupiah exchange rate stability, while expanding the availability of hedging instruments and promoting international trade and investment. Strengthening money market deepening by expanding underlying DNDF to boost liquidity and reinforce JISDOR as a reference for exchange rate setting in the forex market Accelerating infrastructure development, including Electronic Trading Platforms (ETP) as well as a Central Counterparty (CCP) Developing Money Market Development Blueprint 2025 Promoting inclusive and green economy and finance Source: Bank Indonesia BANK SENTRAL REPUBLIK INDONESIA Financial Market Deepening • Payment System Policy Strengthening the accommodative macroprudential policy stance in 2022 to revive bank lending to the corporate sector and drive the national economic recovery, while maintaining financial system stability Increasing incentives for banks disbursing loans/financing to priority sectors and MSMEs and/or meeting the target Macroprudential Inclusive Financing Ratio (RPIM) from 1st September 2022 Strengthening implementation of the RPIM, primarily through bank commitment to the RPIM target, based on the expertise and business models available Accommodative macroprudential policy stance by: • • • • Relaxing the Loan / Financing-to-Value (LTV / FTV) ratio on housing loans / financing Relaxing down payment requirements on automotive loans/financing Holding the countercyclical buffer (CCB) at 0% Macroprudential Intermediation Ratio (MIR) in the 84- 94% range Macroprudential Liquidity Buffer (MLB) at 6% with 6% repo flexibility, and the Sharia Macroprudential Liquidity Buffer (SMLB) at 4.5% with repo flexibility at 4.5% Accelerating payment system digitalization to stimulate economic recovery, particularly household consumption, while advancing an inclusive and efficient economy and finance Expanding cross-border QRIS by, among others, accelerating implementation, piloting local currency settlement (LCS) with other Asian countries and organising National QRIS Week to achieve the target of 15 million new users Strengthening payment system policy to reinforce economic recovery and accelerate inclusive digitalization by: . Extending the grace period on a min credit card payments and late fees from 30th June 2022 previously to 31st Dec 2022 to support credit card transactions while mitigating credit risk. Extending the 0% QRIS merchant discount rate (MDR) for micro merchants from 30th June 2022 previously to 31st Dec 2022 to continue efforts to expand the digital ecosystem and boost transactions, particularly amongst MSMEs.. ° Strengthening and expanding electronification: Social program, e-payment for Government • Increasing the number of participants, expanding the services and garnering greater acceptance of BI-FAST for more efficient transactions between banks and members of the public 96#98Bank Indonesia Policy Mix: September 2022 BB BANK BANK INDONESIA BANK SENTRAL REPUBLIK INDONESIA The BI Board of Governors agreed on 21st and 22nd September 2022 to raise the BI 7-Day Reverse Repo Rate by 50bps to 4.25%, while also raising the Deposit Facility and Lending Facility rates by 50bps to 3.50% and 5.00% % ୪୧ Rp Raise the Bl 7-Day Reverse Repo Rate to 4.25% Strengthening monetary operations by increasing the interest rate structure in the money market in accordance with the higher BI7DRR to lower inflation expectations and return core inflation to the target. • • Strengthening rupiah stabilisation policy as part of the measures to control inflation through foreign exchange market intervention, including spot and DNDF transactions, as well as buying/selling SBN in the secondary market. Continuing operation twist through the buying/selling of SBN in the secondary strengthen rupiah to market stabilisation policy by increasing the attractiveness of SBN yields for foreign portfolio investment inflows by raising short-term SBN yields in line with the higher BI7DRR and creating a flatter long- term SBN yield structure considering the transient nature of current inflationary pressures, with inflation expected to return to the target corridor in the medium-long term. Maintaining prime lending rate transparency policy in the banking industry with a focus on bank profitability Accelerating and expanding regional payment digitalisation by utilising the momentum created by announcing the winners of the National Working Group to Accelerate and Expand Local Digitalisation (P2DD) Championship. Accelerating the milestone of 15 million QRIS users and increasing BI- FAST use in payment transactions. Source: Bank Indonesia 97#99Liquidity Normalization Policy Without Disrupting Banking Liquidity Condition Bank Indonesia continues to normalize liquidity policy by raising Rupiah reserve requirements (RR) gradually and maintaining the RR incentive without disrupting liquidity conditions or the intermediation function of the banking industry. • • • Liquidity normalisation policy by raising Rupiah reserve requirements (RR) and maintaining the RR incentive from 1st March to 15th September 2022 has absorbed Rp269.3 trillion of liquidity in the banking industry without disrupting the intermediation function or participation in SBN purchases. In August 2022, the ratio of liquid assets to third-party funds remained high at 26.52%. Liquidity in the economy remained loose, as reflected in the narrow (M1) and broad (M2) money supply, which grew by 13.7% (yoy) and 9.5% (yoy), respectively. Meanwhile, implementing the Joint Decree of the Minister of Finance and Governor of Bank Indonesia, Bank Indonesia continues to purchase SBN in the primary market, totaling Rp102.3 trillion as of 20th September 2022. The implementation of operation twist has successfully raised the yields of short SBN tenors, while maintaining longer term yields. On 20th September 2022, the IndONIA rate had increased 58bps compared with the level recorded at the end of July 2022, thus reaching 3.38%. Principles for Long Term Government Bond Purchasing by Bank Indonesia in the Primary Market SBN Purchases by Bank Indonesia for State Budget Financing Source: Bank Indonesia Market Mechanism Prudent Maintaining the Credibility of Monetary Policy and Maintaining Economic Stability Tradable & Marketable Measured Last Resort Tradable SUN SBSN Considering the Impact on Inflation standby buyer for Non-Public Goods GOVERN Uphold Good Governance SUSTAINABLE 358.32 102.30 Trillion IDR 400 350 -2021 2022* 300 250 200 150 100 50 0 Purchase of SBN for State Budget Funding & Healthcare and Humanitarian Financing Source: Bank Indonesia. * Data as of 20 September 2022 98#100Manageable Monetary Environment amid Heightened Global Uncertainty Well Maintained Inflation Ensured Price Stability 4 2 2812086 + NO 14 Strengthened Monetary Policy Framework 19 August 2016 The New Monetary Operation Framework CPI (%, yoy) rhs •Core (%, yoy) - lhs (%) 8.00 7.00 LF Rate: 7.00 lhs2 BI Rate: 6.50 6.00 8.93 5.00 6.84 4.00 3.04 3.00 Volatile Food (%, yoy) Administered (%, yoy) - lhs Howd 4.69 2.00 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 Aug-22 Rupiah Exchange Rate Fared Relatively Well Compared to Peers 2022 vs 2021 (YTD) TRY -27.41 -43.75 JPY -20.12 -14.02 -15.58 EUR -10.78 -14.77 KRW -9.47 -12.08 PHP -7.84 THB -10.07 -7.38 ■point-to-point average -10.18 ZAR -6.84 -7.05. INR -4.42 -8.51 MYR -4.37 -9.85 CNY -2.20 SGD 21-Sep-22 -4.8.19 IDR BRL -50.0 -40.0 4.910 8.41 5.12 -30.0 -20.0 -10.0 0.0 10.0 20.0 Source: Reuters, Bloomberg (calculated) Q3-2019 Mar-20 Jul-20 Nov-20 Mar-21 Jul-21 Nov-21 LF Rate: 5.00 BI 7Day RR Rate: 4.25 DF Rate: 3.50 Mar-22 Jul-22 Sep-22 12.19 10.58 8.14 15.0 10.0 5.0 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 0.0 -5.0 Total Growth Investment Loans -10.0 Jan-16 May-16 Q3-2016 Q3-2017 Credit Growth Profile % yoy 20.0 Q3-2018 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 10.62 Working Capital Loans Consumption Loans Jul-22 Aug-22 99#101Regional Inflation Remains Under Control ...supported by a well maintained inflation in all regions Regional Inflation, August 2022 SUMATRA 5.92 Ash 6.3 North Sumatra 5.4 Ri 5.9 West Sumatera 7.1 Lampung 5.7 Riau Islands 60 Bengkulu 5.6 Babellands 6.4 South Sumatea 5.4 Jambi 7.7 KALIMANTAN 5.28 West Kalimantan 4.4 South Kalimantan 5.8 East Kalimantan 5.0 Central Kalimantan 6.9 North Kalimantan 5.5 SULAWESI 5.02 Gorontalo 4.2 North Sulawesi 3.8 Central Sulawesi 6.2 West Sulawesi 4.8 South Sulawesi 5.0 South East Sulawesi 6.2 INFLASI NASIONAL August 2022 4.69% (y) Info 4% 3%c Inf≤4% 2% <Inf≤3% Inf≤ 2% Banten 4.2 Dk West Java 4.7 Central Java5.0 Cast Jawa 5.2 Di Yogyakarta 5.5 3.3 Ball 6.5 400 West Nusa Teng5.9 Last Nusa Tenggara 4.9 JAVA 4.24 BALI-NUSA TENGGARA 6.00 Source: BPS. calculated Source: Central Bureau of Statistics of Indonesia (BPS), calculated MALUKU-PAPUA 5.68 Maluku 6.7 North Maluku 3.9 Papua 6.5 West Papua 3.1 100#1025 Strategies to Achieve the Inflation Target 2022 Target Achieving inflation at 3,0%±1% Maintaining core inflation Maintaining volatile food inflation less than 4% Controlling administered price inflation 5 Strategies Strengthening policy coordination to maintain macroeconomic stability and nurture national economic recovery momentum Mitigating the impact Controlling inflationary pressures on volatile of upside risks, including global liquidity policy normalisation and rising international commodity prices, on inflation and public purchasing power food within the 3.0-5.0% range by maintaining supply availability and orderly distribution, particularly during national religious holidays. Strategy implementation is focused on optimising the use of technology and end-to-end agricultural digitalisation, increasing connectivity and strengthening interregional cooperation Strengthening policy communication synergy to anchor public inflation expectations Strengthening coordination between the central and regional governments to control inflation through the National Coordination Meeting on Inflation Control 2022, entitled Food MSME Digitalisation for Access and Price Stability Source: Bank Indonesia 101#10315% 10% 5% 0% -5% -10% Jan-19 Apr-19 Jul-19 YoY Source: Financial Service Authority (OJK Oct-19 Jan-20 -2% -4% -6% Jan-19 Apr-19 Signs of Recovery in Financial Intermediations LOAN In July 2022, bank loans continued to grow by 10.71% (yoy), while Third Party Funds (Deposits) grew relatively stable by 8.59% (yoy). YOY Loan Third-Party Fund (Deposits) 14% 12% 10% 8% 6% 4% 2% 0% Jul-19 Oct-19 Jan-20 Apr-20 As the economy continues to recover, bank loans experience growth, supported by Working Capital and Corporation loans, while the funding side grows at a relatively steady pace, indicating a growing lending appetite. All types of loans continued their positive trend, particularly Working Capital loans, which grew by 13.05% (yoy) in July 2022, indicating that businesses are gradually recovering. Jul-20 Oct-20 Jan-21 Apr-21] Loan growth by segmentation continued to improve in July 2022, driven by Corporation loans, which grew by 12.42% (yoy). MSMEs Consumption Apr-20 Jul-20 Oct-20 Jan-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 YoY Corporation - Total 12.42% 30% 10.87% 25% 10.71% 20% 7.62% 15% 10% 5% Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22222 0% -5% YoY 20% 10.71% 15% 8.59% 10% 5% 0% Working Capital Investment Consumption ■ Total -5% -10% Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-201 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jur-22 As lending appetite started to improve, Third-Party Funds (Total Deposits) grew in July 2022, supported by Current Account and Savings, which increased by 18% and 11.99% (yoy), respectively. Deposits Savings Current Account -- -Third-Party Fund Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-222 18.00% 11.99% 8.59% -0.17% 102 13.05% 10.71% 9.98% 7.62%#104Jan-... Apr-... Jul-19 Oct-... Manageable Credit Risks with Ample Liquidity Jul-20 Liquid Assets to Non-Core Deposits and Liquid Assets to Third-Party Funds (Total Deposits) remained well above the thresholds, following banks' cautious appetite for lending. *) The banking industry is equipped with ample liquidity, strong capitalization, and a manageable credit risk maintained below the threshold. Profitability is also recorded at a steady level. 4 ° 5 + 3210 % The banking NPL ratio continued to improve with the value below the threshold at 2.9% gross and 0.82% net as of July 2022. NPL Net ■NPL Gross 2.9 22 25 20 0.82 15 A The Capital Adequacy Ratio (CAR) of the banking sector was steadily high with a value of 24.92% and Tier-1 capital stood at 23.33% as of July 2022.*) CAR Tier 1 24.92 23.33 Jan-... Apr-... Jul-22 % 6 % Liquid Assets to Non-Core Deposits Liquid Assets to Deposits (rhs) % 180 40 4- 160 140 120 100 80 60- 40 threshold LA/ NCD=50% 27.92 30 2 124.45 20 threshold LA to Deposit (rhs) = 10% 0 10 0 Jan-19Apr-19Jul-190ct-19Jan-20Apr-20Jul-200ct-20Jan-21Apr-21Jul-210ct-21Jan-22Apr-22Jul-22 *) provisional figures due to the relaxation on financial institutions' report to OJK because of Covid-19 Source: Financial Service Authority (OJK) TT 243210 Jan-19 - 10 Jan-19 Net Interest Margin Net Interest Margin and Return on Assets of the banking industry remained stable at 4.72% and 2.37%, respectively, in July 2022. Return on Assets Net Open Position was maintained well below the 20% limit, recorded at 1.72% in July 2022. Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 1.72 103 4.72 2.37#1050 Jan-19 Feb-19 Mar-19 1 2 Apr-19 May-19 Jun-19 Jul-19 Aug-19. Sep-19 Oct-19 Nov-19 3 % 4 Dec-19. Jan-20 Feb-20 Mar-2 Apr-20 May-20 Jun-20 Jul-20 Aug-20. Oct-20 Nov-20 Dec-20 Jan-2 0 IDR tn 500 400 300 200 100 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Net Financing In July 2022, net financing increased to IDR384.6 Tn and continued its positive growth (7.12% yoy). Jan-21 Apr-21 Multi-finance Companies' Performance Continues to Improve The performance of multi-finance companies continues to improve, as shown by growing financing, a manageable NPF ratio, and a stable gearing ratio. The gearing ratio of multi-finance companies stayed below the threshold and stood at 1.98 times in July 2022. Feb-21 Mar-21 Apr-21 May-21 Jun-21 Aug-21 Sep-21 Oct-21 Nov-21. Dec-21 Jan-22 Feb-22 Mar-22 Apr-2 Source: Financial Service Authority (OJK) *) provisional figures due to the relaxation on financial institutions' report to OJK because of Covid-19 Jun-2 YoY % 6 Growth (rhs) 7.12% 10% 5 5% 384.6 0% 4 -5% 3 -10% 2 -15% 1 -20% Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 250 200 1.98 150 100 0 50 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 0 IDR Trillion 0 Jan-19 Apr-19 Jul-19 Oct-19 Domestic Debt Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 The NPF ratio of multi-finance companies remained manageable at 2.72% in July 2022, well below the 5% threshold.*) Multi-finance companies' exposure to domestic debt slightly increased, whereas exposure to foreign debt remained low in July 2022. *) Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 104 Foreign Debt 64.00 159.71 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 2.72#1060 10 20 30 40 Manageable Insurance and Pension Risks with Adequate Performance General insurance Life insurance Insurance and pension funds continue to improve, shown by the adequate performance and manageable risks. is In July 2022, insurance premiums marked a total increase of IDR21.8 Tn (mtm) with General and Life insurance added premiums at IDR8.6 Tn and IDR13.2 Tn, respectively. In July 2022, the Investment Adequacy Ratio of Life Insurance marked an increase, while General Insurance's was steadily kept above the threshold. Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-1 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 240 220 200 180 160 13.2 140 120 100 80 60 8.6 40 20 threshold RBC of the insurance industry remained well above the minimum (120%) with Life Insurance at 493.85% and General Insurance at 313.99% in July 2022. Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 0 Life Insurance threshold Investment Adequacy Ratio= 100% Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 % Life Insurance (Lhs) General Insurance (rhs) 900 400 IDR Tn 800 313.99 350 1,500 700 300 600 1,200 493.85 250 500 200 900 400 300 threshold Insurance RBC (rhs)=120% 150 600 100 200 threshold Insurance RBC (Lhs)= 120% 100 50 300 0 0 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 0 General Insurance Oct-21 In July 2022, insurance and pension fund investment values continued the upward trend and stood at IDR1,409.74 Tn and IDR322.51 Tn, respectively. Source: Financial Service Authority (OJK) *) provisional figures due to the relaxation on financial institutions' report to OJK because of Covid-19 Insurance Jan-19 Apr-19. Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Jan-22 Apr-22 Jul-22 Pension Funds (rhs) 1409.74 IDR Tn 400 Oct-21 Jan-22 Apr-22 Jul-22 350 322.51 300 250 200 105 192.77 112.69#107Domestic Capital Market Performance Amid Global Challenges Stock Index Performance as of 8 August 2022 (compared to 31 Dec'21) Despite the rising FFR, investors are still optimistic for steady economic recovery, supported by the accelerated rate of the 3rd vaccination program. 10900 Following the hawkish stance by major central banks to curb inflation, the majority of global stock indices have plummeted into a negative territory. The performance of the Composite Bond and Stock Index moved positively in September 2022, supported by Indonesia's resilient economic fundamentals. 360 Comp Bond Index Comp Stock Index (rhs) 7500 TURK INDO 85.04% 340 7000 9.79% BRAZ SIN 4.86% 4.43% 6500 320 6000 THAI -0.69% 300 JPN 5500 -2.52% 280 MAL -4.50% 5000 PHIL -7.15% 260 4500 EU -8.61% US CHIN -10.48% HKN-17.42% WORLD-18.88% S KOR 19.93% 240 4000 -11.52% (% YTD) 220 3500 200 -30% -10% 10% 30% 50% 70% 90% Jan-19 Mar-19- May-19- 6L-ING Sep-19- Nov-19 Jan-20- Mar-20- May-20- Jul-20- Sep-20- Nov-20- 3000 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22- May-22 Jul-22 Sep-22 Government bond yields remained competitive, followed by a stable rupiah as the risk premium was maintained. The Net Asset Value (NAV) of equity mutual funds was stable with low volatility, reflecting a steady movement in the capital market. Yield (%) 10 9 8 7 CO 6 5 As of 8 September, 2022 5-yr Yield 10-yr Yield USD/IDR 20-yr Yield ...... IDR (rhs) IDR Tn 700 18,000 600 14,000 500 400 10,000 300 6,000 200 2,000 100 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22- 0 Jan-20 Jan-19 Mar-19- May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Source: Reuters and Ministry of Finance Feb-20 Mar-20 Apr-20 May-20- Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 NAV Equity Mutual Funds As of 9 September, 2022 - ΟΖ-ΛΟΝ Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 JCI (rhs) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22- Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22- Aug-22 Sep-22 106#10880 60 40 20 0 -20 -40 -60 -80 -100 -120 -140 Jan-19 Mar-19 May-19 Domestic Capital Market Performance (continued) ■Gov't Debt Securities ■Equity Several capital market indicators still show a favorable performance and remain stable. 10900 Non-resident portfolios of equity & government bonds recorded a net sell of IDR5.71 Tn while Equity market recorded a YTD net buy of IDR72.83 Tn as of 16 September 2022. Total securities issuance reached IDR172.73 Tn (YTD) as of 20 September 2022, indicating maintained trust in economic recovery. Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-22 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 The number of Capital Market Investors continued to grow to 9.54 million by the end of August 2022, representing a 56% (yoy) increase. IDR Tn ΠΙΡΟ ■Rights Issue Corporate Bond & Sukuk 220 200 180 160 140 120 100 864200 I 127.65 21.05 24.03 2016 2017 2018 2019 2020 2021 2022* 10 9 Total Investor 8 (million) 7.86 8.1 8.39 8.62 8.86 9.11 9.31 9.54 7.49 7.15 7 6.43 6.1 6.76 6 5 3.88 4 3 2.48 1.62 2 1.12 1 0 2017 2019 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 Source: Source: Financial Service Authority, KSEI 107#10935 30 54250225050 15 10 Jan-19 IDR Tn Manageable NPL within Fintech Intermediation Outstanding Loan Peer to Peer Lending (P2PL) Fintech intermediation grows with a manageable NPL ratio and Securities Crowdfunding fundraising continues to rise. LOAN The outstanding loan of P2PL Fintech continued to increase and stood at IDR46 Tn or grew by 88.80% (yoy) as of July 2022. In July 2022, the Non-Performing Loan ratio of P2PL Fintech remained manageable at 2.67%. The total number of investors and issuers in Securities Crowdfunding increased and stood at 120,880 and 269, respectively, as of 31 August 2022. YoY Growth 10% 200% 46 150% 8% 100% 88.80% 50% -0% -50% -100% do do do do do 6% 4% 2% 0% Dec-19 Mar-20 Jun-20 Sep-20 140,000 Number of Investors Number of Issuers 700 120,000 600 571.82 ■Total Fundraising 413.19 100,000 500 120,880 80,000 400 60,000 300 184.90 93,777 40,000 1,380 5,063 51,414 200 64.15 20,000 269 100 14 49 127 6.47 195 0 0 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 108 Source: Financial Service Authority (OJK) Dec-20 Mar-21 Jun-21 Peer to Peer NPL Ratio Continuing the positive trend, the total value of SCF fundraising stood at IDR571.82 billion as of 31 August 2022. Sep-21 Dec-21 Mar-22 Jun-22 2.67%#110Five OJK Priority Policies in 2022 Enhancing The Role of the Financial Services Sector in the Context of National Economic Recovery Increasing Preparedness of the Financial Services Sector for Policy Normalization in Advanced Economies and the Domestic Level OJK'S Policy Priorities 2022 Developing a Sustainable Financing Scheme in the Financial Services Industry to Boost the Development of A New Economy, prioritizing Green Economy Strengthening Digital Transformation Policy in The Financial Services Sector Enhancing Financial Access of All Segments of Society, particularly MSMEs and Improving Financial Literacy as Part of Strengthening Consumer Protection 109#111The Indonesian Financial Services Sector Master Plan (2021-2025) Enhancing Financial Services Sector's Resilience and Competitiveness The 2021-2025 MPSJKI STRENGTHENING RESILIENCE AND COMPETITIVENESS Strengthening capital and accelerating consolidation of Financial Services Institutions (FSI) Strengthening governance, risk management and market conduct Synchronize FSS regulations and supervision by referring to the best practices and/or international standards Strengthening Integrated Supervision of Financial Conglomerates and Cross Cutting Issues DEVELOPMENT OF FINANCIAL SERVICES SECTOR (FSS) ECOSYSTEM Increasing the role of the FSS in supporting priority economic sectors, MSMEs, job creation and regional development Establish FSS integration to add value of Sharia Finance in the development of halal industry and sharia economic ecosystem Expand the financial access and foster public financial literacy Strengthening consumer protection in the FSS Accelerating financial market deepening Supporting FSI business expansion to carry out multi-activities business Increase the role of financial services in the sustainable finance to achieve the SDGs DIGITAL TRANSFORMATION ACCELERATION Support FSS digital transformation innovation and acceleration Developing regulatory framework which supports digital financial sector ecosystem Improving human capital capacity in the financial services sector in line with the development of the digital industry Strengthening the role of research to support FSS digital innovation and transformation Accelerate the implementation of IT-based supervision (Suptech) in OJK and use of Regtech by FSS Perform Business Process Reengineering to increase the quality of licensing, regulation and supervision Source: Financial Service Authority (OJK) COLLABORATION AND COOPERATION AMONG STAKEHOLDERS (ENABLER) 110#112Indonesian Financial Literacy National Strategy (SNLKI) 2021-2025 Taking into account some strategic programs of Strategi Nasional Literasi Keuangan Indonesia (SNLKI) 2013, SNLKI (Revisit 2017), results from SNLIK 2019, and recommendations from various parties, SNLKI 2021-2025 was launched. VISIONS Creating Well Literate Indonesian Society to be Able to Get Suitable Financial Products and Services to Achieve Sustainable Financial Prosperity I 2021 3 STRATEGIC PROGRAMS Financially Competent Wise Financial Attitude And Behavior Access To Finance 2022 I 10 priority targets in the SNLKI 2021-2025 1. Students; 2. Youths; 3. Employees; 4. Farmers and fishermen; 5. Migrant workers; 6. MSMEs; ROADMAP SNLKI STRATEGIC PROGRAMS 2023 7. People with disability; 8. People in 3T (Foremost, Outermost, Behind) areas; 9. Women/housewives; 10. Community 2025 • • Conduct the 4th National Survey on Financial Literacy and Inclusion (SNLIK) • Curriculum Intensification Implementation of Affirmative Action in Financial Literacy and Education for 3T Area and the Disabled Source: Financial Service Authority (OJK) • Intensifying the use of LMS through Inter- Agency Strategic Alliances 2024 Expand the scope of Financial Literacy and Inclusion, specifically in generic financial inclusion products • Enhance Digital Financial Literacy and Education (Smartphone-based Dashboard Application and Tools) Evaluate the Effectiveness of SNLKI 2021 Implementation 111#113Loan Restructuring Extension under POJK No.17/2021 Rationality > Avoid Cliff Effect Push factor to the economy ☛ Higher certainty in preparing 2022 Business Plan POJK 11/2020 1 POJK 48/2020 2 POJK 17/2021 March 2020 December 2020 Key Points on the Stimulus September 2021 Applicability Extension period from 31 March 2022 to 31 March 2023 ✓ Applicable for Commercial Banks and Rural Banks LOAN QUALITY ASSESSMENT Loan quality assessment with 1 pillar only for loan with a ceiling of ≤IDR 10 Billion □ Loan quality on restructuring of loan and/or financing to Covid-19 affected debtors is determined to be “Current” since restructured Banks can provide new loan/financing/providing other funds to debtors affected by COVID-19 without applying uniform classification RISK MANAGEMENT Specific Criteria for Restructuring Debtors ❖ Adequacy of Loan Provision ✰ Dividend Distribution Prerequisites ✰ Stress testing: The impact of restructuring on capital and liquidity Source: Financial Service Authority (OJK) 112#114Digital Banking Transformation Blueprint The Blueprint for Digital Banking Transformation, which was released on 26 Oct 2021, will provide directions for the development of banking digitalization which includes the following aspects: Data Technology Data Protection IT Governance Technology Architecture Data Transfer Data Governance Emerging Technology & Application Machine Learning • ΑΙ • Cloud Computing • Open API • Block Chain / Distributed Ledger Technology Regtech Suptech Customer Engagement Source: Financial Service Authority (OJK) Risk Management Collaboration Institutional Arrangement IT Risk Management Platform Sharing Finance & Investment Outsourcing Cooperation Cybersecurity between financial institutions and non- financial institutions Culture Leadership Organizational Design Talent Customer Customer Experience Customer Insight Customer Trust and Perception Customers with Disability 113#115Bank Indonesia's Comprehensive Financial Deepening Program Acceleration of Money Market Deepening in 2022.. 3 Key Initiatives Blueprint for Money Market Development 2025 ETP Matching Implementation of ETP Matching for Spot Market Instrument expansions: Repo and DNDF Repo Expansion of Repo transaction participant Expansion of underlying Repo • Development of efficient pricing Repo rate " Strengthening treasury certification and market conduct • Utilization of Mini GMRA Syariah * Development of Securities Lending and Borrowing (SLB) Promote FMI Digialization & Strengthening FMI Trading Venue/BI-ETP Central Counterparty BI-5555 BI-RTGS Trade Repository Improving the Effectiveness of Monetary Policy Transmission Repo IndONIA and JIBOR Overnight Index Swap DNDF LCS Develop Economic Financing Sources and Risk Management Long-Term Hedging Instrument Sustainability dan Green Financing Retail Investor Asset Securitization Focus 2021-2022 DNDF Expansion of DNDF transaction participant • Efforts to balance supply-demand • Development of currency and DNDF tenors variations Strengthening JISDOR as a credible DNDF fixing rate Other Instrument Overnight Index Swap and IRS Long Term Hedging Instrument + Local Currency Settlement Source: Bank Indonesia 114#116Bank Indonesia's Continue to Expand Payment System Digitalization in 2022 ..to accelerate integration of the digital economic and financial ecosystem, including financial and economic inclusion DIGITALIZATION TREND 1 FASTER DIGITAL BANKING TRANSFORMATION 2 GREATER COMPETITION AND COLLABORATION [BANK-FINTECH) 3 RAPID E-COMMERCE INNOVATION 2021 & 2022 : RECOVERY AND REFORM PAYMENT SYSTEM AND RUPIAH CURRENCY MANAGEMENT (SPPUR) POLICY IN 2021 SUPPORTING NATIONAL ECONOMIC RECOVERY THROUGH A NON-CASH PAYMENT SYSTEM POLICY SPPUR POLICY DIRECTIONS FOR 2022 PAYMENT SYSTEM POLICY FOR A HEALTHY, COMPETITIVE AND INNOVATIVE PAYMENT SYSTEM INDUSTRY REGULATORY REFORM LICENSING AND APPROVAL SLA PAYMENT SYSTEM SURVEILLANCE ELECTRONIFICATION: • TP200 • GAP 4.0 MUFF • MULTIMODE INTEGRATION 1 ELECTRONIFICATION SOCIAL ASSISTANCE (BANSOS) ELECTRONIFICATION IMPROVEMENT WITH G2P 4.0 2 STRENGTHENING ETP WITH TP2DD ENCOURAGING THE INCLUSIVE AND EFFICIENT DIGITAL ECONOMY AND FINANCE 3 EXPANDING ELECTRONIFICATION IN THE TRANSPORTATION SECTOR PUR 1 RUPIAH CURRENCY MANAGEMENT DIGITALIZATION IN BANKING INDUSTRY Source: Bank Indonesia ENSURING THE AVAILIBILTY OF CASH-IN-CIRCULATION FOR ECONOMIC REACTIVATION 3 RUPIAH DIGITAL DEVELOPMENT 5 RUPIAH CURRENCY AVAILIBILITY SAFE, EFFICIENT AND REASONABLE MARKET PRACTICES IN PAYMENT SYSTEM IMPLEMENTATION PAYMENT SYSTEM PRICE SCHEME POLYCY CYBER SECURITY AND RESILIENCE AML CTF COMPLIANCE THE GI INTEGRATED, INTERCONNECTED, INTEROPERABLEL SAFE, AND RELIABLE INFRASTRUCTURE THROUGH: QRIS DATA. OPTIMIZATION BI-PAST THE AVAILIBILITY & RELIABILITY SNAP OF BANK INDONESIA PAYMENT SYSTEM COORDINATION AND SYNERGY 115#117Section 7 Commitment to Sustainability and Preserving the Environment BHINNEKA TUNGGAL IKA#118Global Trends Strengthening Attention to Climate Change UNFCCC-COP26 GOALS B G20 FORUM The G20 has encouraged countries' commitments on the issue of climate change, including phasing out subsidies on fossil fuels. 01 Secure global net zero by mid- coal 02 Adapt to protect communities 03 Mobilise finance 04 Work together to deliver ⚫ finalise the Paris Rulebook century and keep 1.5 degrees within reach and natural habitats protect and restore ecosystems warning ⚫developed countries mobilise at least $100bn in climate finance per year by 2020. to systems and resilient •International electric vehicles infrastructure financial institutions unleashing ⚫ collaboration between governments, businesses civil society. and the encourage and agriculture trillions in private investment in and public finance sector ⚫ accelerate the phase-out of ⚫ curtail deforestation speed up the switch build defences, EUROPEAN UNION The European Union is discussing a Border Carbon Arrangement policy (part of the EU Green Deal) or the imposition of import taxes on goods that produce emissions according to the amount of emissions produced INTERNATIONAL FINANCE INSTITUTIONS Global financial institutions such as Goldman Sachs, have committed to start reducing and even stopping financing for projects related to fossil fuels. The global trend of ESG funds (funds that pay attention to ESG principles in their investment activities) has been increasing rapidly since 2020. renewables Countries will be encouraged to achieve Net Zero Emissions by 2050 in COP26 Source: Ministry of Finance 117#119Climate Change Risk on Indonesia Indonesia is classified as a country that is vulnerable to the impact of climate change Very Wulnerable Vulnerable Intermediate Less Vulnerable Least Vulnerable Unrated Sovereigns Source Starcard and Poor's 2014 RISKS OF CLIMATE CHANGE 0 ન Indonesia is a country that is very vulnerable to climate change Indonesia is an archipelagic country WITH >17,000 islands and is vulnerable to climate change risks such as the rise of sea level From 2010-2018, national GHG emissions experienced an increasing trend of around 4.3% per year. From 1981-2018, Indonesia experienced increasing temperature of 0.03 °C per year Sumber Data: KLHK (2020), data diolah Indonesia experiences a sea level rise of 0.8-1.2 cm/year, while around 65% of the population lives in coastal areas Source: BMKG (2020) Source: Bappenas (2021) WATER SCARCITY Increasing levels of floods and severe drought will exacerbate the scarcity of clean water. LAND ECOSYSTEM DAMAGE It is scientifically predicted that severe forest fires will occur. This can lead to loss of ecosystems, biodiversity, and changes in Biomass. HEALTH QUALITY DECREASE Floods can cause the spread of vector-borne diseases and death from drowning. An increase in temperature can cause death from heat stroke. FOOD SCARCITY Changes in the production of biomes and ecosystems can lead to food scarcity for all living things. Climate Change may increase the risk of hydrometeorological disasters, which currently reach 80% of the total disasters that occurred in Indonesia. Source: NDC, 2016 Indonesia's potential economic losses can reach 0,66% to 3,45% of GDP in 2030 source: Roadmap NDC Adaptasi, 2020 MARINE ECOSYSTEM DAMAGE Rising sea surface temperatures cause the extinction of coral reefs, seaweed, mangroves, some biodiversity and marine ecosystems. Source: Ministry of Finance 118#120Climate Governance in Indonesia Ministry of Finance is responsible for climate fiscal policy Ministry of Finance c.q. The Fiscal Policy Agency is also the National Designated Authority of the Green Climate Fund (NDA- GCF) as the core interface between the country and the GCF Climate Change National Focal Point (NFP- UNFCCC) •Leading role in Climate Policy Formulation and Coordination -Coordinating climate program implementatir and MRV Source: Ministry of Finance Coordinating Ministries Coordinating Ministry of Economic Affairs Coordinating Ministry of Maritime and Investment Ministry of Environment and Forestry Ministry of Finance (Focal Point) •Climate Finance Policy Formulation & Coordination *Planning & Budgeting for Climate Programs •Climate Budget Tagging *Mobilizing other financing source for climate actions Central Bank and Financial Sector Authority Also coordinating with Central Bank (BI) and FSA (OJK) to promote green and resilience development through fiscal, monetary, and financial policy mix National development plan related to Climate Programs Planning & Budgeting for Climate Programs Climate Budget Tagging Ministry of National Development Planning Technical Line Ministries & Agencies " Implementing role in climate programs and climate budget Implementing role in climate policy and targets 119#121The Government's commitment to climate change mitigation has been formulated in the Nationally Determined Contribution (NDC) and Net Zero Emission (NZE) INDONESIA'S CLIMATE CHANGE AGENDA Paris Agreement and Nationally Determined Contribution (NDC) 2030 MITIGATION GHG Emission Reduction Target Per NDC Sector (MTon CO₂e) INDONESIA N EMISSION REDUCTIO N TARGET FORESTRY ENERGY & TRANSPORTATION WASTE AGGRICULTUR E IPPU 29% 497 314 11 9 3 Target: 29% national effort 41% 692 446 40 4 3.25 41% with international support Carbon Trade Stated in: Carbon • First NDC (2016) Carbon Tax Pricing . • Updated NDC (2021) (initial rate: Rp30/Kg CO2e) Climate Resilience * Long-Term Strategy for Low Carbon and Climate Resilience 2060 Mandate from: Paris Agreement Article. 4.19 ⚫ Dec. 1/CP.21 Para 35 Policy Strengthening and Implementation Capacity Climate Technology Finance Development and Building Transfer LCCP Scenario: • Peak emission 5 sector in 2030 = 540 Mton CO2e • Net-Sink FOLU in 2030 • Net Zero Emission in 2060 or sooner Social Economic Resilience 2 Resilience and 3 Ecosystem and Livelihood Landscape Resilience ADAPTATION Toward Net Zero Emission 2060 120#122Commitment to Sustainability and Climate Change Mitigation Republic of Indonesia's Commitment to Sustainability which Includes Climate Change Mitigation Commitment to Sustainability Successfully implemented the Sustainable Development Goals by achieving the 2030 development agenda introduced by the United Nations (UN). The Indonesia's Presidential Regulation no. 59/2017 concerning the implementation of SDGs in Indonesia mandated the Ministry of National Development Planning to provide the Roadmap of SDGs in Indonesia Background of Commitment Combining public and private funds to support Sustainable Development Goals (SDG)s The Government of Indonesia through the Ministry of Finance and PT Sarana Multi Infrastruktur (SMI) seeks to achieve the SDGs through the establishment of an integrated platform called "SDG Indonesia One"1 which combines public and private funds through blended finance schemes to be channeled into infrastructure projects related to the achievement of SDGs The President's Nawacita Programme The Nine Agenda Priorities of the President's priority actions. Shifting to a low-carbon and climate-resilient development path is an integral part of this mission and is integrated in development policies, strategies and programs 13 14 PAAT JUDGE PERTATION SUSTAINABLE DEVELOPMENT GOALS Mitigation Based on the Paris Agreement and Indonesia's NDC, Gol has committed to reduce greenhouse gas emission by 29% in 2030 on unconditional mitigation scenario using self-financing, and by 41% in 2030 on conditional mitigation scenario using international financing support Based on National Energy Policy, increase New Renewable Energy to 23% of national energy mix by 2025 Strengthen the Core Actions through strengthening the policy framework, human and institutional capacity, socializing, and researching With regards to forestry, the actions should include deforestation prevention, forest degradation prevention, conservation, and others Note: (1) SDG Indonesia One, PT Sarana Multi Infrastruktur Environment Commitment and Objectives Adaptation Climate Change: Significant risks for Indonesia's natural resources that will impact the production and distribution of food, water, and energy National Action Plan on Climate Change Adaptation: National framework for adaptation initiatives mainstreamed Development Plan into the National Medium-term Goal of Indonesia's climate change adaptation strategy: reduce risks on all development sectors by 2030 through local capacity strengthening, improved knowledge management, convergent policy on climate change adaptation and disaster risks reduction Biodiversity Indonesia is the world's largest archipelago comprising over 16,056 islands with unique ecosystems containing a large number of diverse species. Contains the world 3rd largest area of rainforests Biodiversity Strategy and Action Plan 2015-2020 was launched to provide an outline on how biodiversity could be utilized sustainably to improve economic and development opportunities. Source: Ministry of Finance 121#123Commitment to Handling Climate Change NATIONAL CLIMATE CHANGE POLICY TIMELINE 1994 UNFCCC ratification to UU No.6/1994 2004 Kyoto Protokol ratification to UU No.17/2004 2011 and RAN-GRK and RAN-API 2014 FISCAL POLICY RESPONSE TO CLIMATE CHANGE ISSUES Mitigation Fiscal Framework Tax Incentives for NRE and clean technology development Revocation of Fuel Subsidy Implementaion of Climate Budget Tagging NEXT STEP OF CLIMATE RELATED FISCAL POLICY CO2 에 CLIMATE CHANGE AGENDA NATIONAL AND GLOBAL 13 PENANGANGAN PERUBAHAN IKLIM Preparation of fiscal instruments related to Carbon Tax and Carbon Trading Nationally Determined Contribution (NDC) SDGs 13: Climate Action updating Mitigation Fiscal Framework 300-04 Paris Agreement ratification 2016 to UU No.16/2016 2016 Submission of Nationally Determined Contribution (NDC) to UNFCCC Indonesia's Green Bond/Sukuk Framework Mainstreaming Climate Budget Tagging in local government budget Ecology-based Fiscal Transfer Integration of Climate Change Planning, Budgeting and MRV Systems Preparation of SDGs Government Securities Framework Low Carbon Development Planning in RPJMN 2020- 2024 NET ZERO CO, EMISSIONS 2050 2020 RPJMN 2020-2024 Prioritas Nasional 6 Source: Ministry of Finance Agenda Net-Zero Emission 122#124Green Economy Has Become One Of Indonesia's Economic Transformation Strategies The energy transition is inevitable, and we have to face it. As a country that still relies on fossil energy, Indonesia views the energy transition to reduce the share of fossil energy in the energy mix. This decline in share shortly will not necessarily reduce the amount of fossil energy used. For doing so, Indonesia has several policies on compensation and incentives, i.e., clean energy acquisition, energy transition mechanism (coal-fired PP early retirement), conversion of dirty energy sources, carbon trading, carbon tax. The Carbon Tax will be enforced from April 1, 2022, based on Law Number 7 of 2021 concerning the Harmonization of Tax Regulations. • Fossil fuel share will be decrese, but the magnitude not recessarily reduced Renewable energy share will increase and dominate the energy mix. • Corporate that still use non-renewable energy Upgrading technology to clean technology Use of CCS (Carbon Capture Storage); b) Early retirement Coal power plant; d) Carbon trading; and e) Clean energy R&D investment • New corporation a) Clean energi utilization b) Carbon trading Clean Energy R&D Investment Policy - Compensation & Incentives Clean Energy Acquisition Incentives to companies that will conduct R&D and invest in clean/renewable energy (hydrogen, hydro, PLTS, etc.) 1 2 Energy Transition Mechanism (Coal-fired PP Early Retirement) Compensation for early retirement of dirty/non- renewable energy plants (PLTU) 3 Conversion of Dirty Energy Sources Incentives to convert dirty energy sources into clean energy sources (Coal to DME) 4 Carbon Trading The mechanism for buying and selling carbon, and emission certificates as securities that can be traded on the carbon exchange Carbon tax Dis-incentive on the use of dirty/non-renewable energy, and the use of funds from carbon tax to encourage the development and utilization of 5 ean/renewable energy 123 Source: Coordinating Ministry for Economic Affairs#125The Government Has Committed to Address Climate Change Impacts The National Climate Change Policies: 1994 The ratification of UNFCCC Law 6/1994 The ratification of Kyoto Protocol to Law 17/2004 2004 2011 & 2014 RAN-GRK dan RAN-API Low carbon development and climate resilience are one of national priorities in Indonesia Medium-Term National Development Plan 2020- 2024 • Waste Management • & Circular Economy Green Industry Development Nationally Determined Contribution (NDC) is a national commitment to contribute the reduction of GHG emission from the BaU scenario by 2030: 29% by self-effort and 41% with international cooperation Mitigation GHG Reduction Emission Target per NDC Sector (Mton CO2e) 2016 The ratification of Paris Agreement to Law 16/2016 • Low Carbon Development Sustainable Energy Development • Marine & Coastal Target Forest Energy & Transportati Waste Low Carbon Agricult IPPU on ure • Land Rehabilitation 2016 2020 Delivery of first NDC to UNFCCC The Medium-Term National Development Plan 2020- 2024 6th National Priority Sustainability 29% 497 314 11 9 2,75 Marine and Coastal 41% Sector 650 398 26 4 3,25 Climate Resilience • Water Sector . Agricultural Sector Health Sector 2021 Delivery of Update NDC and LTS-LCRR 2050 Source: Coordinating Ministry for Economic Affairs Source: *Second Biennial Update Report (2018); **Roadmap NDC (2020) Estimate cost of mitigation Rp3.461 trillion* (accumulated cost until 2030) Rp3.779 trillion** (accumulated cost in 2020-2030 reaches Rp343 trillion per year) 124#126GHG emissions Net Zero Emission (NZE) BUSINESS AS USUAL NET-ZERO 2010 2020 2030 2040 2050 2060 2000 2000 2090 2100 Source: World Resource Institute لبليليلا NET ZERO EMISSIONS Net Zero Emission is a more ambitious Long Term Strategy to keep the global temperature rate below 1.5 degrees. 1. 10 Key Solutions to Achieve NZE 2050 PHASE OUT coal plants 6. INCREASE public transport Emissions Reduction 2. Gross Emissions Net Emissions Carbon Removal 3. 4. DECARBONIZE Cement, stel & plastics INVEST in clean energy & efficiency RETROFIT buildings 7. * 8. 000 9. 101 DECARBONIZE aviation and shipping HALT deforestation & RESTORE degraded lands REDUCE food loss and waste 5. SHIFT to electric vehicles 10. EAT more plants & less meat ipcc INTERGOVERNMENTAL PANEL ON climate change In 2018, the Special Report on Global Warming of 1.5°C, the Intergovernmental Panel on Climate Change (IPCC) stated the importance of achieving the NZE by 2050 or earlier to prevent the worst effects of climate change. PARIS2015 LMNL COP21-CMP11 Sumber: World Resource Institute Long Term Strategy was mandated ini Paris Agreement Article 4.19 "All Parties should strive to formulate and communicate long-term low greenhouse gas emission development strategies...." Source: Ministry of Finance 125#127Indonesia's Net Zero Emission Currently, there are 48 Parties (with a global emission share of 54%) that have SUBMIT communicated to the UNFCCC regarding the target NZE. Indonesia and 148 other Parties (with a global emission share of 46%) have not submitted the document The Government of Indonesia is drafting the Long Term Strategy on Low Carbon and Climate Resilience 2050 (LTS-LCCR) document and sectoral strategies to support the commitment to Net-Zero Emission 2050. 33,3% of global emissions Source: Ministry of Finance Source: World Resource Institute 18,8% of global emissions 46% of global emissions 1,9% of global emissions Net-zero Target in Law 5 Parties Net-zero Target in Policy Document 27 Parties Net-zero Target in Political Pledge 16 Parties No Document Submitted 149 Parties. 126#128The ETM Mechanism To Address The Energy Transition Challenges The Main Objectives CO₂ Shortening the economic life of the PLTU project (early retirement of coal) Getting additional reduction of greenhouse gas emissions to achieve Indonesia's NDC (CO2 emission avoidance) Limitation: Does not provide additional burden from the fiscal side/APBN (minimum fiscal burden) Does not change the electricity tariff as stated in the Electricity Sale and Purchase Agreement (PJBL) / Power Purchase Agreement (PPA) which will increase the electricity rates Gaining access to financing with lower cost of fund Ⓡ Solution Support for Cost of Capital Reduction 01 Support to reduce the Cost of Equity 02 Support to reduce Cost of Debt 127#129Energy Transition Mechanism Overview Energy Transition Mechanism (ETM) Carbon Reduction Fund (CRF): to accelerate coal fired power plants retirement Clean Energy Fund (CEF): to support development of new renewable energy power plants Through Indonesia ETM Country Platform Through SDG Indonesia One Platform Note: To support fulfilment of NDC and NZE The CRF is not bundled with CEF, but there will be a commitment to use the proceeds of CRF directly and indirectly to develop new renewable energy projects 128#130INDONESIA ENERGY TRANSITION MECHANISM COUNTRY PLATFORM (Carbon Reduction Fund) CO. Carbon Credit ENERGY TRANSITION PROJECTS PT PLN Projects IPP Projects Loan prepayment PPU Projects Asse t spin IO Projects SPV IUPTLSK Projects TAX Carbon Market Mechanism (Carbon Trading, Carbon Bond, RBP, Stand By Buyer, Sustainability Linked Bond/Loan) Carbon Tax Impact to Carbon Market COUNTRY PLATFORM Steering Committee (CMMI, MOF, MOEF, MEMR, Low Cost Refinancing MSOE) Country Platform Manager VAME Equity Commercial Loan Secretariat Facilitie S T De- risking TA Blended Finance Cash/Revenue Recycling Non-Tax Revenue SOURCE OF FUNDS Government of PMN, Low Cost Loan, Indonesia Guarante Commercial / INA Or directly to projects (DPL, Philanthropies Multilateral / Sustainability Bilateral Development Linked Loan, Support for Asset Spin- Off, etc) finance, Climate finance, Impact fund 129#131ETM Transaction Mechanism Kementerian Energi dan Sumber Daya Mineral ETM Roadmap MINISTRY OF FINANCE REPUBLIC OF INDONESIA RUPTL Fiscal Support MEMR Technical Team ENERGY TRANSITION PROJECTS PT PLN Projects IPP Projects PPU Projects IO Projects IUPTLSK Projects BU ୩ BAUSM ANDONESIA Key Performance Indicator Stakeholders Government Policy MSOE Technical MOF Energy Team PLN Implementation Level Team coordinatio n SOURCE OF FUNDS ETM COUNTRY PLATFORM Steering Mechanism/ Government of Indonesia Steering Committee Secretaria Fund Manager (PT SMI) SMi Refinancin g 0% Blended Finance Commercial / INA Philanthropies Multilateral / Bilateral DGFRM IIGF Facilities De-risking Or Development directly to finance, Climate finance, Impact projects fund MINISTRY OF FINANCE REPUBLIC OF INDONESIA Fiscal Support Analysis and Recomendation CO. ETM transaction Scheme Carbon Tax Budget spending Carbon Equity injection Credit Social Economical impact Gov contingent liability risk De-risking instrument Electricity system impact 130#132Indonesia Energy Transition Mechanism Country Platform ENERGY TRANSITION PROJECTS PT PLN Projects IPP Projects PPU Projects IO Projects IUPTLSK Projects COUNTRY PLATFORM Penasihat (Advisory Board) Pimpinan (Steering Board) Ketua: Kemenkeu Wakil Ketua: KemenESDM, KemenKLHK, KemenBUMN Anggota (Member) unsur-unsur yg mewakili Kemenkeu, KemenESDM, KemenKLHK dan KemenBUMN ditambah dengan undangan Steering Committee SC Secretariate Country Platform Manager Facilities Blended Finance SOURCE OF FUNDS PMN,Low Cost Loan, Guarantee Government of Indonesia Commercial / INA Or directly to projects (DPL, Sustainability Linked Loan, Support for Asset Spin-Off, etc) Philanthropies Multilateral / Bilateral Development finance, Climate finance, Impact fund The Steering Committee (SC) provides directions, sets targets and KPIs, and makes critical decisions regarding the provision of financing instruments (facilities) to energy transition projects. The SC Secretariate plays role in carrying out daily tasks related to the SC function. The Country Platform Manager manages the related funds and provides the facilities to the projects according to the direction of the SC. 131#133Phasing Out Coal Scenario 120 100 80 Skenario Zero Carbon 2060 (%) 1 7 9 8 29 45 50 53 8 60 40 。。 20 68 62 59 24 11 0 2020 2045 2050 PLTU 2025 2030 2040 PLTGU Nuklir ■ PLTA PLTP EBT Lain PLTS + PLTB Skenario Zero Carbon 2060 (TWh) 1800 1600 1400 1200 1000 800 600 400 200 0 2020 2025 2030 PLTU PLTGU Nuklir ■ PLTA 2040 2045 2050 2060 2060 PLTP EBT Lain PLTS + PLTB In 2060 All Power Plants in Indonesia are Using Clean Energy 1. The market size utility in 2060 is 1,800 TWh, currently electricity production is 300 TWh plus the launch of 120 TWh from the 35 GW program, so there is room for 1,380 TWh for additional New Renewable Energy (NRE) generating capacity. 2. From 2020 onwards, the portion of PLTU capacity will be reduced (in the graph, it can be seen from the decreasing black color). 3. Efforts to retire fossil power plants will start in 2030 and significantly decrease in number by 2040, following the completion of the power plant contract. 4. Nuclear plants will enter in 2040 to maintain system reliability as nuclear technology becomes more secure. 5. Phase out all coal-fired power plants in 2056, because they have been replaced by NRE. 6. Meanwhile, the development of NRE power plants will experience a massive increase starting in 2028 due to the advancement of battery technology which is getting cheaper. Then it will increase exponentially starting in 2040. And by 2045, the portion of NRE will already dominate the total power plant. The next decade, all power plants in Indonesia came from NRE. Source: PT PLN 132#134The Roadmap To Net Zero Emission In The Electricity Sector Without carbon abatement, the electricity sector is estimated to contribute 0.92 billion tCO2e/year emissions by 2060. Business As Usual 0.92 Projection of Electricity Sector Emission (Billion tCO2e/year) Generation share based on technology, % (carbon neutral scenario) • • 2020 Source : PLN 14% 27% 20% 49% 4% 11% 66% 66% 70 2060 Carbon Neutral 62% 60% 35% 6% 26% 27% 16% 8% 2020 2030 2040 2050 2060 2060 COAL DIESEL GAS CCS RES • In the business as usual scenario, Electricity contributed 0.92 billion tCO2e/year in 2060. • Getting around this needs to be devised a strategy to reduce emissions through increased RE and decrease in fossil-based generation. According to PLN's estimation, current best scenario is a shift in power generation to 66% based on EBT and 26% CCS technology in 2060. This scenario also supports the PLTU phasing down program in the future. The PLTU early retirement scheme through the ETM has the potential to be carried out. 133#135Carbon Pricing or Carbon Economic Value (NEK) is a part of a comprehensive policy package for climate change mitigation Emission Trading System First Period Entity A and Entity B have the same allocation at the beginning of the period Emission No Allocation Certificate Emission Obtained 01. Trading instruments, consists of 2 types: a. Emission Trading System (ETS) an entity that emits more buys emission permit from other entities that emits less b. Crediting Mechanism: entities undertaking emission reduction activities can sell their carbon credits to other entities requiring carbon credits Emission Offset 02. Non-trading instruments, consists of 2 types: End of Period Gra DY anak B C Emission Reduction Certificate Initial Emission Final Emission Emission Obtained A A has an allocation surplus that can be sold to B B Euals E-lal B is a business entity that is subject to a cap C is a business entity that is not subject to a cap a. Carbon tax, imposed on carbon content or carbon emitting activity b. Result Based Payment (RBP): payment is given as a result of emission reduction Carbon Tax Carbon Content GRK Emitting Activities Result-Based Payment Non-Trading No carbon rights transfer 134#136Carbon tax is one of the instruments of Carbon Economic Value (NEK) OBJECTIVES 1 CHANGE BEHAVIOR Aims to change the behavior of economic actors to switch to low-carbon economic activities. PRINCIPLES green 2 1 JUST Based on the polluters-pay-principle. 2 SUPPORTS EMISSION REDUCTION Support GHG emission reduction targets in the medium and long term. 3 ENCOURAGE INNOVATION AND INVESTMENT Encouraging carbon markets development, technological innovations, and investments that are more efficient, low-carbon, and environmentally friendly. AFFORDABLE Paying attention to affordability aspect for the benefit of the wider community. 3 GRADUAL Paying attention sector readiness so as not to burden the community. 135#137Principles of Rate Arrangement and Basis for Carbon Tax Imposition 1. 2. 3. 4. Carbon Tax Implementation The Carbon Tax will be imposed for the first time on entities operating in the coal-fired power plant sector with a tax mechanism based on emission limits. The implementation of the carbon tax was decided to be postponed to July 1, 2022 from the initial plan of April 1, 2022, taking into account the Indonesia conditions The Government focused on ensuring the availability and stabilization of energy and food prices, ensuring the acceleration of the national economic recovery after the pandemic, as well as to harmonize with efforts to improve various technical regulations for implementing carbon market schemes. Technical regulations related to the carbon tax need to be implemented immediately to support the implementation of the carbon market that has been started in the coal-fired power plant sector. The Ministry of Finance is currently preparing a Government Regulation on the Carbon Tax Roadmap which will be aligned with the Carbon Market Roadmap. The Government Regulation on Carbon Tax Roadmap will be issued in 2022. This is conveyed to comply with the provisions of the HPP Law, that the determination of the Draft Minister of Finance Regulation (RPMK) on Tariffs and Basis for Imposition of Carbon Taxes requires prior consultation with the parliament. Tax Base Excess Carbon Emission within 1 tax year above the emission technical approval issued for the emitting unit 2022 Tax Rate IDR30/kg CO2e 2023 1.2 x average carbon price* *in the previous tax year's carbon market or IDR30/kg CO2 (whichever is higher) Carbon Market Definition "The place where carbon trading takes place which is integrated in the National Registry System for Climate Change Control (SRN-PPI)1 Refers to carbon trading that is already running and determined by the relevant minister or carried out through the PPI sub- SRN which is registered and registered at the PPI SRN1 Stages of Application in Coal-fired Power Plants 2022 limited to the State Electricity Company (PLN) and IPP* generating units with a capacity of > 100 MW 2023 Coal-Fire Power Plant with a capacity of ≥ 25MW Source: Ministry of Finance 1If carbon trading has not been integrated into the SRN PPI 136#138Connectivity NDC And Carbon Pricing 1 In-scope NDC 2 Out-scope NDC 3 Beyond NDC Voluntary Carbon Market o Sector, sub-sector and activities included on the 29% NDC target; 。 Sector, sub sector and activities baseline; o Financing sources from APBN/APBD, Green Sukuk, SDG Bonds, Carbon bonds, Carbon pricing; 。 Sector/sub-sector not included yet on the 29% NDC target; 。 Potential to become NDC upgraded commitment; Examples: Blue economy, blue carbon, sea grass submitted on the 2021 NDC updated, 。 Energy Efficiency through CCS and CCUS submitted on the 2021 NDC updated, o Sector, sub-sector and activities already included on the 29% NDC target and beyond achievement; 。 Basic requirement: beyond achievement, government authorization and registered on the SRN; PATHWAYS IN SCOPE, OUT SCOPE and BEYOND NDC Source: draft Ministerial Regulation on NDC, 2022 137#139Roadmap New Renewable Energy (NRE) to Net Zero Emission The NRE Roadmap towards Net Zero Emission is a form of energy transition roadmap from fossil energy to renewable energy to achieve net zero emission in the energy sector. Some of the important points in this roadmap include: NRE development to reach 100% in the national energy mix, Reducing the operating emissions of PLTD which is getting bigger, Reducing fossil energy consumption, both in the residential, transportation, and power generation sectors, Utilization of energy efficiency equipment on a large scale. 2021: President decree RNE, President decree Retirement Coal, Cofiring electric Steam Pwr Plant, CCT, conversion Diesel Pwr Plant to gas & EBT 2022: Act NRE, Electric stove 2 millon household/year 2024: Interconnection, smart grid & smart meter 2025: NRE 23% dominate by Solar Power Plant Electrification ratio 100% Electricity .217 kWh/kapita. 2031: Retirement Steam Pwr Plant Phase I sub-critical, interconnection inter-island start COD 2035: RNE 57% dominate by Solar Pwr Plant, hydro, geothermal - Electricity 2.085 kWh/kapita 2045: First Nuclear Pwr Plant start COD 2050: RNE 87% dominate Biomass & Solar Pwr Plant - Stop selling conventional car Electricity 4.299 kWh/kapita 2021-2025 2026-2030 2031-2035 2036-2040 2041-2050 2051-2060 2027: Stop import LPG 2030: NE 42% dominate Solar Pwr Plant No New PLTS fosil pasca 2030 - - - EV 2 million car & 13 mil motorcycle Gas fuel vehicle 300.000 Household Gas 10 million - DME fuel Electric 1.548 kWh/kapita 2037: Retirement Steam Pwr phase 2 sub-critical, critical & some super critical 2040: NRE 71% dominate Solar pwr plant & biomass - Stop selling conventional motorcycle No Diesel pwr plant - LED lamp 70% Electricity 2.847 kWh/kapita 2054: Last Steam pwr plant retired 2055: Last Steam gas pwr plant retired 2060: NRE 100% dominate Solar pwr plant, hydro - All vehicle electricity basis Electric stove 52 million household - Household gas 23 milion Electricity 5.308 kWh/kapita Source: Coordinating Ministry for Economic Affairs 138#140Indonesia's Green PPP Project Priority Sector □ Indonesia realizes that investment in green and sustainable infrastructure infrastructure is becoming increasingly important in post-pandemic. ☐ Regarding the NDC targets in reducing carbon emission, Indonesia has outlined the PPP priority. sectors of 2020-2024, in which two sectors are related to climate issue, respectively: • . Urban Transport, and Waste Management Environmental quality aspects of projects are considered since the beginning of PPP project cycle, notably in planning and preparation stage, such as climate change issues and promoting green financing. ☐ The Project Development Facility (PDF) from MoF is focused to assist those priority sectors while considering environmental and other quality aspects during project preparation and its implementation.. ☐ Additionally, GOI also initiate the development of ESG framework to be implemented to projects which involve private financing and at the same time obtain government supports. Source: Ministry of Finance PPP Focused Sectors 2020-2024 Water and Sanitation Housing E Urban Transport Gas Distribution Health Facility Waste Management Ongoing Initiative on Sustainable Infrastructure: ESG Implementation ■ ESG aspects will be applied on the Government Support (GS) Product for Infrastructure Projects ■ The scope of Implementation are: 1. Initial stage: Govt. Support for infrastructure projects through the Public Private Partnership (PPP) scheme; 2. Further staging: Govt. Support for infrastructure projects for non-PPP projects which will be determined later; and ■ The development of ESG Framework 139#141The Role of Fiscal Policy in Green Economic Transformation Rp TAX State revenue policy is directed to support the development of renewable energy as well as environmentally friendly business areas The Ministry of Finance provides tax facilities in the form of tax holiday, tax allowance, import duty exemption, VAT reduction, government borne income tax, and reduction of property tax to support the development of geothermal and other renewable energy State expenditure policy is directed to support low-carbon and climate-resilient government spending (spending better). The Ministry of Finance implements the Mechanism of Climate Budget Tagging at the national and regional levels to determine the contribution of the State Budget and Sub-National Budget to tackle climate change. Implementation of climate budget tagging in the region in collaboration with the Ministry of Home Affairs and Local Government. Source: Ministry of Finance Financing policy is directed to support expansive fiscal policy through the development of innovative financing instruments The Ministry of Finance issues Sovereign Green Sukuk (Green Islamic Bond) both global green sukuk and green sukuk retail to finance climate mitigation and adaptation projects. 140#142Recent Policies CCFF is a framework for formulating fiscal policies and strategies to mobilize funds outside the Budget Financing Supply Analyze current spending on climate activities from public sector. NDC sectors Ministries Non-ministries Map current spending on climate activities from Financing Needs Financing Gaps Climate Fiscal Strategy Map next- decade need for climate finance. Identify total finance gap for all (public and private sectors). Strategy to mobilize public finance Strategy to mobilize private finance Facing the existing challenges, the Government continues to develop innovative policies. Two of them are: a. Climate Change Fiscal Framework (CCFF) Indonesia Commitment to Climate Change b. Carbon Pricing private sector. Fiscal and non-fiscal policies affecting climate action Policy and governance of climate finance actors, mandates and coordination Identify barriers, enabling environments, and innovative public private financing mechanisms. Improved coordination mechanism across actors to deploy climate finance and monitor impact URGENCY - Strengthening Fiscal Functions - Supporting NDC, SDGs & RPJMN commitments Mobilizing funding sources - Strengthening the framework of funding institutions Climate Finance Mobilization, Governance and Impact 141#143State Expenditure for Climate Change 140.00 5.70% 6.00% 120.00 4.24% 100.00 2.81% 80.00 60.00 3.81% 5.00% 3.62% 4.00% 1.97% 3.00% 2.00% 40.00 1.00% 20.00 72.35 95.58 132.48 97.66 77.81 104.79 0.00 0.00% 2016 2017 2018 2019 2020 2021 Realisasi Anggaran Perubahan Iklim (Triliun Rp) Porsi dalam APBN • Nominally, the climate change budget in Indonesia experienced an increasing trend from 2016-2018. For the year 2019 s.d. 2020, there was a decline as a result of the policy of reallocating and refocusing the budget for handling Covid-19. • Along with the economic recovery, the climate change budget will increase again in 2021 with a total budget ceiling of IDR 104.79 trillion. • During the last 6 years, the average climate change budget has reached IDR 83.8 T per year or 3.66% of the APBN per year. • This means that since 2016 s.d. In 2021, the APBN allocation is only equivalent to 31.5% of the total financing needs for climate change which will reach Rp. 3,461 trillion (Rp 266.2 trillion/year). Source: Ministry of Finance, calculated 142#144Government Expenditure for Climate Change the average climate change budget allocation in the 2018-2020 State Budget is IDR102.65 trillion per year the average mitigation and co-benefit budget reached the average adaptation budget reaches IDR 40.4 trillion IDR 62.7 trillion per year per year IDR trillion 140.00 6.0% 6.5% 4.0% 120.00 2.8% 5.5% 48.64 100.00 4.5% 80.00 3.5% 39.20 60.00 2.5% 33.30 40.00 20.00 83.83 1.5% 58.46 44.51 0.5% -0.5% 2018 2019 2020 Alokasi Anggaran Alokasi Anggaran Adaptasi (LHS) Alokasi Anggaran Alokasi Anggaran Mitigasi & Co-Benefit (LHS) Porsi dalam APBN (RHS) • Around 88% is used to finance green infrastructure. • Approximately 12% is used to finance supporting activities such as regulations and policies, R&D, capacity building, and community empowerment. • The share of the climate change budget in the APBN has a downward trend. It is necessary to strengthen climate change commitments in the work plans of the Ministries/Agencies in the future. Waste, 4.94% Agriculture, 6.97% IPPU, 0.02% Forestry and Non- Infrastructure LULUCF, 11.9% Composition of the Climate Change Mitigation Budget by sector Energy and Transportati on, 83.93% 4.14% Composition of Climate Change Budget by Type of Output Source: Ministry of Finance, calculated Infrastructure 88.1% 143 (%)#145Fiscal, Monetary, and Financial Sector Policy Mix for Green Economy Fiscal Policy: KEMENTERIAN KEUANGAN REPUBLIK INDONESIA 1. Mitigation Fiscal Framework 2. Implementation of Govt. Expenditure for Climate Change 3. Tax Facilities 4. Republic of Indonesia's Green Bond/Sukuk Framework 5. Indonesia SDGs Government Securities Framework 6. Sustainable Finance Platform: SDG Indonesia One, Green Climate Fund, BPDLH 7. Development of Climate Change Fiscal Framework 8. Government support for new and renewable energy (NRE) development BB BANK INDONESIA BANK SENTRAL REPUBLIK INDONESIA Central Bank Policy: 1. Macroprudential Policy that encourages financing in green building and environmentally friendly vehicles 2. Technical Assistance/Capacity Building to increase awareness about sustainable and green finance 3. International Cooperation Forum (Network for Greening the Financial System/NGFS) QJ OTORITAS JASA KEUANGAN Financial Sector Authority Policy: 1. Roadmap of Sustainable Finance, 2. Regulation of Sustainable Finance Implementation, 3. Green Bond/Sukuk Regulation, 4. Capability Enhancement to market participants with support from the International Finance Corporation (IFC) and the Sustainable Banking Network (SBN) Source: Ministry of Finance 144#146National Climate Financing GEI SONUSE 9065-0704 13 PENANGANGAN PERUBAHAN IKLIM NET ZERO CO, EMISSIONS 2050 Funding support to achieve the targets of the climate agenda can come from the public, private and international sectors towards "a just and affordable transition" SOURCE OF FINANCING STATE BUDGET DOMESTIC Carbon Tax/Excise • Central Government Expenditure . TKDD Expenditure • Financing (Green Sukuk, SDGs Bond) • • NON-STATE BUDGET Carbon Trading Private Investment and CSR BPDLH SDG Indonesia One . ICCTF ⚫ Financial Services sector (Bank and Non Bank) • Capital market Philanthropy .⚫ State Owned Enterprises Source: Ministry of Finance • CHALLENGES AHEAD, ESPECIALLY DUE TO THE COVID-19 PANDEMIC Limited fiscal space Strengthening the fiscal reform agenda and fiscal consolidation will be the key to fiscal sustainability onward. Optimal mobilization of non-state budget climate change funding sources. Ensure that the economic recovery and transition to a green economy is Just and Affordable. INTERNASIONAL BILATERAL Government Private MULTILATERAL • Green Climate Fund ⚫ Global • Environment Facility Adaptation Fund ⚫ MDBs ⚫ IFIS Strengthen the viability of green projects so that they can be financed by the financial sector and receive international support. The current market mechanism has not been able to reflect the price difference between the Green and non-Green sectors. Currently, it is still limited to Green Financing, it is necessary to strengthen Greening the Finance in order to support the sustainable development agenda. 145#147The Need of Climate Change Funding Indonesia's commitments are derived into each sector's agenda. The commitments have significant financial consequences Reference Second Biennial Update Report, KLHK (2018) Roadmap NDC Mitigation Indonesia, KLHK (2020) Cost Estimation of Climate Change Mitigation Scope The cost of mitigating climate change to achieve NDC Cost of climate change mitigation to achieve NDC (using mitigation action cost approach) Cost/Impact Estimation Accumulated mitigation cost reaches IDR3.461 trillion until 2030 Accumulated mitigation cost in 2020-2030 reaches IDR3.779 trillion (IDR343,6 trillion per year) The Need of Climate Change Mitigation Funding, by Sector NDC Mitigation Roadmap (Rp trillion) Sectors Second BUR (Rp trillion) Forestry Energy and Transportation 77,82 3.307,20 93,28 3.500,00 IPPU 40,77 0,92 Waste 30,34 181,40 Agriculture 5,18 4,04 Total 3.461,31 3.779,63 Source: Second Biennial Update Report (2018) & Roadmap NDC Mitigasi (2020) Source: Ministry of Finance Policies are required to ensure that financing requirements are met. 146#148Role of The Ministry of Finance in Mobilizing Funds From Non-State Budget GREEN CLIMATE FUND SDG Indonesia One bpdlh Ingungen • The GCF is the implementing entity for the UNFCCC financial mechanism which was established by the Conference of Parties (COP) in 2010. • • Has the potential to help Indonesia achieve its Nationally Determined Contribution (NDC) target without burdening the state budget. The world's largest climate change fund. • Intended for developing countries. • Have a variety of financial instruments. • Have a balanced target between mitigation and adaptation • SDG Indonesia One is an integrated funding cooperation platform managed by PT. SMI by combining public funds and private funds through a blended finance scheme to be channeled into infrastructure projects in Indonesia related to the achievement of the SDGs. • SDG Indonesia One funding sources come from the private sector, donors/philanthropy, financial institutions, institutional investors, and bilateral and multilateral institutions. • BLU BPDLH or Indonesia Environment Fund (IEF) is a merger between the BLU of the Center for Forest Development Financing and the environmental conservation program of the Ministry of Environment and Forestry. • IEF manages and provides the funds needed for environmental and forestry protection, • preservation and conservation, biodiversity management, and climate change mitigation and adaptation. IEF not only manages funds in the environmental & forestry sector, but also in the fields of energy, agriculture, transportation, marine & fisheries, and industry. Source: Ministry of Finance 147#149GCF Approved Indonesian Projects/Programs GCF Readiness 1 Programs I and II for NDAs and Nationally Accredited Agencies GGGI Project Preparation 2 Grants: (PPF) for Bus Rapid Readiness | USD850.000 Readiness II USD998.000 Transit Development in Semarang VSMi Result-based Payment UN 3 (RBP) REDD+ Indonesia DP (2014-2016) Grant: USD788.000 RBP: USD103,8 m 4 Geothermal Resource Risk Mitigation Facility (GREM) Funding Scheme (in million USD) 7.5 2.5 5 THE WORLD BANK ■ GCF - Loan ■GCF Reimbursable Grant ■GCF - Grant 310 Climate Investor One (CIO) Funding Scheme (in million USD) 100 26.5 FMO Entrepreneurial Development Bank Global Subnational Climate Finance (SnCF) Funding Scheme (in million USD) - GCF - Reimbursable Grant ■ Co-Financing - Development Fund (Grant) ■ Co-Financing - 18.5 150 9.5 IUCN PEGASUS GCF Grant ■GCF - Equity 222 225 GCF Funding: USD100 m; Co-financing: USD310 m. IBRD - Loan Ministry of Finance/ PT. Sarana Multi Infrastruktur 310 GCF Funding: USD100 m; CEF Tier 1 (Grant) ■ Co-Financing - CEF Tier 2 Co-financing: USD721,5 m. (Equity) 600 GCF Funding: USD168,5 m; Co-financing: USD609,5 m IUCN Grant Pegasus Capital Advisors - Equity Source: Ministry of Finance 148#150Indonesia Environment Fund /BPDLH 13 PRIORITY PROGRAMS In accordance with the Regulation of the Minister of Finance No. 124 of 2020 concerning Procedures for Management of Environmental Funds bpdlh Ingungen na CO₂ 1. Climate change control (including the REDD+ program) 2. Sustainable forest management (including the REDD+ framework) 3. Forest and land fire control and peatland restoration (including the REDD+ framework) 4. Social forestry and environmental partnership (including the REDD+ framework) 5. Forest and land rehabilitation activities and other supporting activities (including the REDD+ framework) 6. Conservation of biodiversity and ecosystem (including the REDD+ framework) 7. Control of pollution and/or environmental damage(including the REDD+ framework) H 8. Increasing the competitiveness of natural resource-based industries 9. Treatment of solid, liquid and hazardous waste 10. Use of environmentally friendly and low-carbon materials and technologies 11. Increasing the application of energy efficiency, NRE, and social energy conservation and environmental partnership 12. Reducing disturbances, threats, and violations of environmental and forestry laws 13. Other environmental protection and management activities Source: Ministry of Finance 149#151Funding Gap for Climate Change Management NDC Unconditional Target (avoiding emission in 2030 as much as 29% of BAU) Total Cumulative 2020-2030 Fiscal Policy Responses 100% 100% 90% anx 70% EU SUA 40% 30% 20.4 10% -27% 40% 53% U The need of green investments Estimate of green investments by Estimate of green investments by Government Sector Private Sector [365 milyar USD) (97 milyar USD) 170 mi var 1.5 Gap [145 milyar..50 (1) The effects of covid are estimated to be apparent until 2023. (2) The need for green investment refers to the actual amount of green investment per tonne of emissions averted in the past, as well as the ratio of investment in mitigatied sector vs adaptation in the past. (3) does not take into account the role of local governments. (4) The cost of non-field works is factored into the calculations. Optimization of budget utilization Optimal mobilization of non-Budget climate change funding sources, domestically and internationally. Taxation and Excise incentives • to stimulate the role of the private sector, for example through efforts to develop EBT and electric vehicles Ministries/Agencies Budget for Climate Change Mitigation and Adaptation • CBT in planning and budgeting systems Transfer to Regions and Village Funds (TKDD) . TKDD also encourages the increase of regional governments role in dealing with climate change : a. Physical DAK (food, water, health, environment and forestry sectors) b. Non-Physical DAK (waste management) c. Regional Incentive Fund (incentive from waste management performance) d. Village Funds (use of low-emission alternative energy) e. Ecology Based Fiscal Transfer (financial assistance for environmental improvement) Innovative Financing for Sustainable Development . Strengthening green infrastructure financing and deepening the Islamic financial market through Green Bond/Sukuk Framework dan SDGS Government Securities Framework CCFF bpdlh insungentido GREEN CLIMATE FUND SDG Indonesia One PISP 150#152Government Support for New and Renewable Energy PISP Fund & Government Guarantee for Electricity Projects To promote new and renewable energy development, the Government provides fiscal support in the form of government guarantee for electricity projects (credit guarantee and business viability guarantee), guarantee for SOEs direct lending from international financial institutions, and Geothermal Fund Facility (PISP Fund). Several guarantees has been provided to renewable energy power plant construction and Power Purchase Agreement (PPA), i.e hydropower, geothermal, and solar PV. PISP funds (and its co-finance), can be used for geothermal development in the exploration stage and eligible for Government Drilling, SOE Drilling/Public Window, and Private Drilling/Private Window. PISP Fund Exploration Financing Facilities (MOF Regulation 80/2022) Objective Fund Manager Unlocking geothermal market by providing support and financing for geothermal exploration PT Sarana Multi Infrastruktur (SMI) Total Funds IDR 3,1 Trillion (revolving fund) Loans and data provisions Fund Distribution Main feature Governance ◉ De-risking facility for exploration stage ■ Minister of Finance's Assignment Letter (SK) to PT SMI to finance exploration project. Monitoring and supervision by The Joint Committee between MoF and MEMR. Engaging academic, professional experts, and independent appraisal to provide review and assessment for strategic decision of the Joint Committee. ■ Strengthening the role and synergy of MOF's Special Mission Vehicles PISP Co-financing (Collaboration with international funding) Geothermal Energy Upstream Development Project (GEUDP) World Bank Geothermal Resource Risk Mitigation (GREM) CTF grant (USD49million) and GEF grant (USD6,25million). Aims to support the government's geothermal data and information provisioning facility (Government Drilling). PT SMI as fund manager & PT GDE as implementing agency. Total USD655 million (loan, grant, and PISP co-finance) Aims to support exploration on the SOE Drilling & Private Drilling scheme. 151#153Sustainable Finance Initiatives Ex Br A www.Y OK B Sustainable Finance Roadmap Phase I (2015-2019) OJK is committed to supporting the Indonesian Government's target to achieve Net Zero Emission and enhancing stakeholders' awareness on the importance of development. Phase I Achievement Strategic Policies 1. Implementation of 8 sustainable finance principles. 2. Reports of SF Action Plan from financial institutions. 3. Corporate Social Responsibility fund allocation. 4. Financial institutions' Sustainability Report. Enhancing Awareness sustainable finance 1. Capacity building for OJK's supervisors and stakeholders. 2. Guideline on Sustainable Credit, Financing, Investment for palm oil plantation and industry, clean energy, green building, and organic farming with sharia scheme. Institutional Collaboration 1. Collaboration with ministries and other national/international organizations, including universities and research centers. Regulation on Sustainable Finance OJK stipulated some regulations to support SF a. POJK No.51/2017 regarding the Implementation of SF for Financial Institutions, Issuers and Public Companies, which aims to enhance awareness of the financial industry, regulate financial institutions' obligation to submit action plan for enhancing sustainable finance and to publish sustainability report. b. POJK No.60/2017 regarding framework and incentives for issuance of green bonds. In 2020, OJK also issued supervisory guidance and policy regarding incentives for electric vehicle-related financing. C. Source: Financial Services Authority (OJK) OFPRICAN RITA (3551-257951 MATHE Green Taxonomy Sustainable Finance Roadmap Phase II (2021-2025) focuses on sustainable finance ecosystem development consisting of 7 components. The Roadmap reflects OJK's commitment to realizing transparent regulations, building synergies in cooperation with relevant ministries/agencies and stakeholders, as well as improving the capabilities of the financial industry. ESG Risk Integration in Financial Institutions Risk Management Developing Incentives Guidance of Sustainable Finance Implementation in the Capital Market and NBFI . Supporting Infrastructure Development • Product Innovation . Policy Product Guidebook of Credit/Financing/ Investment in Sectors National Campaign - Indonesia Sustainability Week Sustainable Finance Inclusion Program Informative Publications for New Investors Awareness Market Infrastructure Development of Sustainable Finance Information Hub SUSTAINABLE FINANCE INDONESIA Human Resources Non- Government Support Coordination among related Ministries/ Institutions • • • Sustainable Finance Training and Training of Trainers E-learning development Developing Research Centers ⚫Pilot Project on Sustainable Finance Sustainable Finance Taskforce Monitoring and Evaluation of the Implementation of Sustainable Finance 152#154OJK's Support for Sustainable Finance Development 1 OJK strategic actions to ensure effective implementation of Sustainable Finance principles and to respond to climate change: 1. Developing a Green Taxonomy 2. Preparing for carbon exchange operations, in line with the Government's policy 3. Developing a reporting system for financial institutions, including green financing/instruments in accordance with the Green Taxonomy 4. Developing a risk management framework for financial services industry and a risk-based supervision guideline for supervisors to implement climate-related financial risks 5. Developing innovative and feasible project financing schemes 6. Enhancing awareness and providing capacity building programs for all stakeholders Source: Financial Services Authority (OJK) 2 The establishment of the Financial Services Sector Sustainable Finance Task Force as a forum for cooperation and coordination with the industry to respond to developments in sustainable finance at national, regional and global forums. 153#155Urgency of the Development of Green Taxonomy Urgency of Green Taxonomy Development at OJK - To standardize green definitions and criteria. - To regularly monitor credit/financing disbursement to the green sectors. - To improve reporting process carried out by the Financial Services Industry. Targets - Policy in the green sector, as the basis for developing innovative products and/or sustainable financial services as well as incentive and disincentive mechanisms for financial services sector. Availability of database for green sectors. Strategic Goals To develop standard definitions and green criteria of economic sector activities that support sustainable development, and climate change agenda in Indonesia. - To encourage innovation and investment in economic activities that have a positive impact on improving the quality of the environment. - To encourage the financial sector to provide financing for green economy activities. - To provide a reference for financial services sector, investors, business players (national and international) to disclose information related to financing, funding, or investment in green economy activities. Source: Financial Services Authority (OJK) 154#156Green Taxonomy . Proposed Definition of Green Taxonomy Classification of sectors based on business activities that support environmental protection and climate change mitigation and adaptation. The Green Taxonomy is used as a guideline for information disclosure in the Financial Services Sector and can be used as a reference for creating innovative sustainable financial products and/or services. In developing the Green Taxonomy, OJK actively participates in the Financial Stability Board, particularly regarding sustainable financial disclosure for Financial Services Institutions in the Financial Stability Board - Workstream on Climate Disclosures/WSCD and the ASEAN Taxonomy Board. The finalization of the Green Taxonomy involved 43 Directorate Generals in 8 related ministries to confirm the thresholds and to categorize around 2,700 sectors and sub-sectors classification. Green Taxonomy Definition Green taxonomy is a classification system that establishes a list of environmentally sustainable economic activities. (EU Green Taxonomy, 2019) A classification tool for the financial industry (banking) to protect the environment and reduce greenhouse gas emissions. (China Green Catalogue, CBRC, 2013). Benefits of Green Taxonomy As a guideline for allocating capital, a tool to support risk assessment, and a reference for other stakeholders in supporting efforts to mitigate and adapt to climate change. In its development, the green taxonomy is flexible and dynamic so that it can adapt to investment strategies and patterns and changes in technology, science, activities and new data. Source: Financial Services Authority (OJK) (ASEAN Taxonomy for Sustainable Finance ver.1, Nov 2021) 155#157Indonesia's Existing Green Bond and Sukuk Framework Existing Green Bond and Sukuk Framework under which the Republic of Indonesia can Finance and Refinance Selected Eligible Projects 1 2 Use of proceeds of Green Bond and Green Sukuk Eligible Green Projects must fall into one of the nine eligible sectors Project Evaluation and Selection Review and approval process by Ministry of Finance and National Development Planning Agency Project selection will utilize the Climate Budget Tagging (CBT) mechanism 3 Management of Proceeds Management - Ministry of Finance The Green Bond and Green Sukuk proceeds will be credited to a designated account of relevant ministries for funding exclusive projects as previously defined. Allocation is managed by Ministry of Finance Line Ministries The line ministries utilizing the proceeds shall track, monitor and report to Ministry of Finance, on the environmental benefits of the Eligible Green Projects 4 Reporting Ministry of Finance will prepare and publish a Green Bond and Green Sukuk annual report on the list of projects, amounts of proceeds allocated to such projects and estimation of beneficial impacts The Framework has received a second opinion from the Centre for International Climate Research (CICERO) and is awarded medium green shading, which allows the possibility of light, medium and dark green project types. This shade also shows that eligible listed projects are representing the country ongoing efforts towards the long-term vision in carbon emission reduction Source: Indonesia's Green Bond & Green Sukuk Framework 156#158Indonesia's Existing Green Bond and Sukuk Framework (cont'd) Existing Green Bond and Sukuk Framework under which the Republic of Indonesia can Finance and Refinance Selected Eligible Projects Eligible Sectors Green Shading according to CICERO's second-party opinion Dark Green Renewable Energy Resilience to Climate Change for Highly Vulnerable Areas and Sectors/Disaster Risk Reduction Medium to Dark Sustainable Transport Waste and Waste to Energy Management Green Tourism Sustainable Agriculture Light to Medium Energy efficiency Sustainable Management of Natural Resources The Framework Excluded Use of Proceeds for New Fossil Fuel- Large Scale Based Power Source: Green Sukuk Allocation and Impact Report - May 2021 Electric Light Green Green Building Hydropower Plants > 30 MW Nuclear Assets 157#159Innovative Financing: Sovereign Green Sukuk and SDGs Bond Sovereign Green Sukuk and SDG Bond 83% Global Green Sukuk Proceeds Allocation by Sector Projected Emission Reduction: First Issuance 2018 5.7 millions ton Coze 55% 45% No Issuance Value Second Issuance 2019 30.14% 1 Global Green Sukuk (Mar 2018) USD1.25 billion 8% 38.57% 22% 11% 3,2 millions ban Coze 2 Global Green Sukuk (Feb 2019) USD750 million 2018 Energy Efficiency Sustaleable Transport Resilience to Climate Change 3 Green Sukuk Retail (Nov 2019) IDR1.46 trillion for Highly Velnerable Areas and Sectors/Disaster Risk Reduction 2019 Third Issuance 2020 CO 2020 21.96% 1,4 milions ton Loze 4 Global Green Sukuk (Jun 2020) USD750 million 11% 8.33% 2021 Panewable Energy 5 Green Sukuk Retail (Nov 2020) IDR5.42 trillion Waste and Waste to Energy Management Green Building 6 Global Green Sukuk (Jun 2021) USD750 million Four Issuance 2021 Co 202,674 108 (02 7 SDG Bond (Sep 2021) EUR500 million SDGs Financing Needs in Indonesia In USD Billion, 2020-2030 8 Green Sukuk Retail (Nov 2021) IDR5.00 trillion 8:00 Est. SDGs Financing Distribution In USD Billion, 2020-2030 Non-Government Government 4,710 9 Global Green Sukuk (Jun 2022) USD1.50 billion 700 Sovereign green sukuk is Indonesia's main financing instrument for climate actions. • Total global green sukuk financing: USD5.00 billion • Total green sukuk retail financing: IDR11.88 trillion • Green sukuk has financed various projects in 6 sectors, mostly for sustainable transportation and resilience to climate change projects . ⚫in June 6th, 2022, Rol has successfully issued its 5th global green sukuk by the amount of USD1.5 billion (10y tenor). Source: Ministry of Finance 44% 3,030 759 668 THOD 588 517 500 453 396 400 147 302 3:00 261 404 39% 227 372 192 347 316 200 247 267 291 100 17 168 226 206 0 BALL High 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Sou: APPELS, SOR, 2018 56% B1% BAU High 158#1602022 Republic of Indonesia Global Green Sukuk USD1.50 Billion Issuer Issuer Rating Format Settlement Date Tenor Maturity Date Issue Size Profit Rate Reoffer Price Use of Proceeds Listing Joint Bookrunners Co-Managers Republic of Indonesia through Perusahaan Penerbit SBSN Indonesia III Moody's: Baa2 (Stable) / S&P: BBB (Stable) / Fitch: BBB (Stable) 144A / Reg S June 6th, 2022 10 Year June 6th, 2032 USD1.50 billion 4.70% p.a 100.00% In line with Rol's SDGs Government Securities Framework SGX-ST and Nasdaq Dubai CIMB, Deutsche Bank, Dubai Islamic Bank, HSBC, and Standard Chartered Bank PT BRI Danareksa Sekuritas Tbk and PT Trimegah Sekuritas Indonesia Tbk Transaction Highlights ■The USD1.50 billion 10-year global green sukuk issuance was part of two-tranches USD3.25 billion Rol sukuk issuance in international market at June 2022. ■ The largest green sukuk issuance in international market has received a very positive response from investors, indicated by the total order more than USD5.1 billion, reflecting an oversubscription of 3.4x ■ The first green sukuk issuance in 10-year maturity by the Rol. ■The successful 5th issuance of global green sukuk demonstrates the Rol's dedication and commitment to green and sustainable finance, as well as diversifying financing methods in the effort against climate change. Source: Ministry of Finance 159#161Indonesia's Green Initiatives: Financing Green Projects Indonesia's Green Projects Financed by a Combination of Green Sukuk and Other Funding Sources The Government of Indonesia has issued five sovereign global green sukuk, consecutively in March 2018, February 2019 and June 2020, 2021 & 2022, with the total amount of USD5.00 billion In 2019-2021, the Government of Indonesia issued three retail green sukuk (all issuances held in November), with the total amount of IDR11.88 trillion. Global Green Sukuk Proceeds Allocation by Sector (in percentage) 8% 27% 66% 48% 7% 83% 38.57% 30.14% 22% 11% Use of Proceeds 2021 Global Green Sukuk Issuance Breakdown by Sector Renewable Energy 0.20% 21.70% Resilience to Climate Change for Highly Vulnerable Areas And Sectors/Disaster Risk Reduction 27.22% 11.30% Use of Proceeds 2020 Retail Green Sukuk Issuance (ST-007) Breakdown by Sector 2018 Energy Efficiency Sustainable Transport Resilience to Climate Change for Highly Vulnerable Areas and Sectors/Disaster Risk Reduction 2019 2020 Sustainable Transport 12.24% 17.90% Renewable Energy Sustainable Transport 21.96% 46.33% 5% 7% 9% 8.33% 11% 2021 22.81% 1% Renewable Energy Green Building 1.00% Energy Emclency 0.01% Resilience to Cumate Change for Highly Vulnerable Areas andSectors/Disaster Risk Waste and Waste to Energy Management Green Building Reduction Waste Management 8.33% 3.07% 27.18 Cumulative (2018, 2019, 2020, and 2021) Green Sukuk Issuance Proceeds per Sector Cumulative (2018, 2019, 2020, and 2021) Green Sukuk Issuance Proceeds per Activity Financing of Fiscal Year 2021 Projects Refinancing of Fiscal Year 2017 Projects Project Owner Note: Ministry of Public Works and Housing Ministry of Transportation Ministry of Energy and Mineral Resources Financing of Fiscal Year 2020 Projects Refinancing of Fiscal Year 2017 Projects Project Owner Ministry of Public Works Ministry of Agriculture Ministry of Transportation Energy Efficiency 8.8% Green Building 0.2% Renewable Energy 8.7% Waste and Waste to 8.4% Energy Management 35.6% Resilience to Climate Change for Highly Vulnerable Areas and Sectors/Disaster Risk Reduction 38.4% Sustainable Transport Information extracted from Green Sukuk Issuance Allocation and Impact Report 2022, which has obtained a limited assurance statement from EY Projects were financed in Indonesian Rupiahs and the currency exchange rate is based on the State Budget Assumption for 2021 budget year of IDR 14,600 per USD. Source: Ministry of Finance Mitigation Adaptation 64.5% 35.5% 160#162Indonesia's Green Initiatives: Projected Environmental and Social Impacts Environmental Benefits Arising from 2021 Global Green Sukuk Projected Environmental and Social Impacts For 2021 Global Green Sukuk Renewable Energy Expected to: Reduce 136.86 tCO2e and generate 150kWp clean electricity Reduce 4,972 tCO₂e, generating 2,456,654 KVA of clean electricity Resilience to Climate Change Expected to . Improve drinking water supply debit serving 180,000 household connections or 900,000 individuals Benefit 58,624 ha, 1,175 ha and 3,650 ha irrigated rice/crop areas in Central Java, DI Yogyakarta and South Sulawesi, improving cultivation intensity 685 building units benefitting low-income labours, vulnerable communities and students Sustainable Transport Expected to: • The railway infrastructure and facility development shows insignificant GHG reduction due to the decline of public transportation demand resulted from lockdown and work from home policies, and changes in lifestyle and movement pattern during the COVID- 19 pandemic period Waste Management Expected to: Benefit 865,357 households due to the improved waste management Benefit 75,780 households from sewerage systems Green Buildings Expected to Reduce electricity • . consumption at 10,371m2 floor-sized green buildings Benefit 670 MSMES Indonesia is highly committed to the achievement of the Sustainable Development Goals, which have been integrated into the national mid-term development plan. The Green Sukuk proceeds have contributed to the achievement of these goals: SUSTAINABLE DEVELOPMENT GOALS NO 1 POVERTY 2 ZERO HUNGER GOOD HEALTH AND WELL-BEING 5 GENDER EQUALITY 7 AND CLEAN THINGY DECENT WORK AND ECONOMIC GROWTH INDUSTRY W NSTRUCTIVE CLEAN WATER AND SANITATION 10 REDUCED INEQUALITIES 11 13 CUMATE NATION Source: Joint Second Party Opinion from CICERO and IISD on the Republic of Indonesia SDGs Government Securities Framework, Ministry of Finance Note: (1) CICERO is a global, independent, research-based second party opinion provider on green bond frameworks, (2) IISD is a Second Party Opinion provider offering practical solutions to the growing challenges and opportunities of integrating environmental and social priorities with economic development 161#163Tangible Results from Indonesia's Green Sukuk Initiatives Green Projects Refinanced and Financed with Proceeds from Indonesia's Green Sukuk Issuance in 2021 Proceeds from Indonesia's Green Sukuk Initiative has been successfully deployed to a range of eligible Green projects Renewable Energy Resilience to Climate Change Sustainable Transport Jakarta, Java, Sumatera Waste Management Sumatera, Sulawesi Selatan, Yogyakarta, Riau Green Buildings North Sumatera, Jakarta, Lampung Locations DKI Jakarta Across the country Amount Committed to Finance 2021 New Projects USD 2.0 million USD 204.4 million USD 91.9 million USD 62.6 million Amount Committed to Refinance 2017 USD 162.9 million USD 85.2 million USD 134.4 million Projects Relevant SDGs Project Examples Financed/Refinanced Note: USD 7.5 million Planning, Development, and Supervision of New, Renewable Energy and Energy Conservation Infrastructure Installation of 23 units of rooftop solar PV plants on the State's border stations and 2 volcano observation stations Provision and revitalisation of solar PV powered aids to navigation at sea to enhance the sea safety transportation and traffic services Flood and Lava Control, Urban Drainage Management, and Coastal Protection • Construction of seawalls, sea dikes or breakwaters of 160 meters in length, and were built to protect the housings inhabited by 758 residential areas and public facilities of fishermen settlements, as one of the climate vulnerable communities Development of Drinking Water Supply System Construction, expansion and improvement of reservoirs, intakes, transmission pipes, water treatment plants serving 3 to 4 neighbouring municipalities. The development is prioritized at areas prone to prolonged drought or flooding due to the impact of climate change and improve the drinking water supply debit Construction and Management of Railways Infrastructure and Supporting Facilities Improvement of operational facilities of the Palembang Light Rail Transit (LRT), to reduce traffic congestion and reduce duration of commute, with use of electricity as the LRT's system main source of power Development of electric- powered railway systems in other urban areas, including an airport railway system in Jakarta, Medan, and Yogyakarta Improvement of Municipal Solid Waste Management System at Regional- and City-scale Development of sanitation services, which cover municipal solid waste (MSW) management and sewerage management systems Development of Green Building Construction and rehabilitation of buildings that meet the green and environmental friendly criteria and indicators set by the Government; Reconstruction of the Aksara Traditional Market buildings with a green building concept The Aksara Traditional Market in Medan provides 670 kiosks benefiting for 670 MSMEs. Information extracted from Green Sukuk Issuance Allocation and Impact Report 2022, which has obtained a limited assurance statement from EY Projects were financed in Indonesian Rupiahs and the currency exchange rate is based on the State Budget Assumption for 2021 budget year of IDR 14,600 per USD. Green Sukuk issued in 2018-2021 will follow the Rol Green Bond and Green Sukuk Framework. Going forward, Green and SDGs Securities will follow the SDGs Framework. Source: Ministry of Finance 162#164Overview of the Indonesia SDGs Government Securities Framework The SDGs Government Securities Framework is the Key to the Issuances of Green and SDGs Securities Journey of The Republic of Indonesia SDGs Government Securities Framework ("SDGs Framework") January 2018 Published a Green Bond and Green Sukuk Framework & obtained a Second Party Opinion from CICERO 2018-2021 Successfully issued 4 Green Sukuk based on ROI Green Bond and Green Sukuk Framework SDGs Government Securities Framework August 2021 SDGs Framework developed to demonstrate how ROI intends to issue Green and Blue Bonds and Sukuk ("Green Securities") and Social and Sustainability Bonds and Sukuk ("SDGs Securities") Aligned with International Standards & Principles Use of Proceeds 1 New or existing Eligible SDGs Expenditures with Green and/or Social focus ("Eligible Expenditures") All Green and SDGs Securities issued under The Republic of Indonesia ("ROI") SDGS Government Securities Framework will align with international standards and principles Process for Project Evaluation and Selection 2 Budget Tagging Process to select Eligible SDGs Expenditures for Green and SDGs Securities Management of Proceeds 3 The Managed within the Government's general account; allocation register will be established The Green Bond Principles Sustainability Bond Guidelines The Social Bond Principles ACMF 4 Reporting Annual allocation reporting and impact reporting Source: Republic of Indonesia SDGs Government Securities Framework Source: Ministry of Finance 163#165Indonesia SDG Government Securities Framework (cont) Updated Green Bond and Sukuk Framework which the Republic of Indonesia can Finance and Refinance Selected Eligible Projects (of social (SDGs), green or blue projects) Eligible SDGs Expenditures with Green and Blue focus Dark Green Renewable Energy* Resilience to Climate Change for Highly Vulnerable Areas and Sectors/Disaster Risk Reduction* Medium to Dark Sustainable Transport Waste and Waste to Energy Management* Green Tourism* Sustainable Water and Wastewater Management Light to Medium Energy efficiency* Sustainable Management of Natural Resources on Land Light Green Green Building Eligible SDGs Expenditures with Green focus can be further linked to Blue (ocean related) projects Alignment with the Rol's 2030 SDGs Target Sustainable Management of Natural Resources on Ocean* GOOD HEALTH 6 CLEAN WATER AFFORDABLE AND DECENT WORK AND INDUSTRY, INNOVATION 11 SUSTAINABLECITIES AND WELL-BEING AND SANITATION CLEAN ENERGY ECONOMIC GROWTH AND INFRASTRUCTURE AND COMMUNITIES 12 RESPONSIBLE CONSUMPTION Source: Indonesia SDG Government Securities Framework AND PRODUCTION QO 13 CLIMATE ACTION 14 LIFE BELOW WATER 15 LIFE DN LAND 164#166Indonesia SDGs Government Securities Framework (cont) Updated Green Bond and Sukuk Framework which the Republic of Indonesia can Finance and Refinance Selected Eligible Projects (of social (SDGs), green or blue projects)arecfv D7YC34E Eligible SDGs Expenditures with Social focus Employment Generation including through the Potential Effect of SME Financing and Microfinance Access to Essential Services Socioeconomic Advancement and Empowerment I Food Security and Sustainable Food Systems Affordable Basic Infrastructure Alignment with the Rol's 2030 SDGs Target NO 1 POVERTY 2 2.1 FLIEL GURLION 4 5 舞團 EDICI GENDER EQUALITY CLEAN WATER 8 DECENT WORK AND AND SANITATION ECONOMIC GROWTH 555 The Framework Excluded Use of Proceeds for New Fossil Fuel- Based Power Electric Large Scale Hydropower Plants > 30 MW Source: Indonesia SDG Government Securities Framework 9 INDUSTRY, INNOVATION AND INFRASTRUCTURE 10 REDUCED INEQUALITIES 11 SUSTAINABLE CITIES AND COMMUNITIES Nuclear Assets 165#167External Review of Indonesia SDGs Government Securities Framework Engaged with CICERO and IISD to Adhere to the Best Market Practice of External Reviews Joint Second Party Opinion from CICERO Shades of Green¹ and IISD² "CICERO °C Shades of Green IISD International Institute for Sustainable Development Republic of Indonesia 9DCs Framework Second Opinion கர் Extracts of Republic of Indonesia SDGs Framework Second Opinion The Green Bond Principles The Social Bond Principles The "In alignment with the green bond principles, social bond principles, and sustainability bond guidelines." Sustainability Bond Guidelines "CICERO Shades of Green governance procedures in the Republic of Indonesia's framework to be Good." "Eligible social projects credibly aim for enabling sustainable development that will be supported by proposed comprehensive reporting of impacts" "We rated Republic of Indonesia's green bond and sukuk issuances under this framework CICERO Medium Green". ban dann von ka man ald J..... LA PAZ Awwww Aligned with Best Practice and to Obtain Assurance on Post-Issuance Annual Reporting The Republic of Indonesia will engage an independent third party to provide assurance on its annual reporting on Green and SDGs Securities and the compliance of each Green and SDGs Securities issued with this Framework Source: Joint Second Party Opinion from CICERO and IISD on the Republic of Indonesia SDGs Government Securities Framework Note: 1. 2. CICERO is a global, independent, research-based second party opinion provider on green bond frameworks IISD is a Second Party Opinion provider offering practical solutions to the growing challenges and opportunities of integrating environmental and social priorities with economic development Source: Ministry of Finance IISD 166#168Republic of Indonesia Sustainable Development Goals (SDG BOND) EUR500 Million Issuer Republic of Indonesia Issuer Rating Format Moody's: Baa2 (Stable) / S&P: BBB (Negative) / Fitch: BBB (Stable) SEC-Registered September 23, 2021 Settlement Date Tranche Currency USD Tap of 2031s USD USD 40 Year USD EUR Long-12 Year EUR Issue Size $650 million €500 million (SDG) Original Principal $600 million Amount Reopening Size $600 million Maturity July 28, 2031 September 23, 2061 Coupon (p.a.) 2.150% 3.200% March 23, 2034 1.300% Reoffer Yield Reoffer Price Use of Proceeds Listing 2.180% 99.734% 3.280% 98.225% Repurchase certain of its outstanding global bonds pursuant to its tender offer announced on September 13, 2021 1.351% 99.419% Invest in projects that may qualify as Eligible SDGs Expenditures SGX-ST and Frankfurt Stock Exchange Transaction Highlights ■ Debut Sustainable Development Goals (SDG) EUR issuance by an Asian Sovereign ■ Debut Liability Management transaction and Debut US$ 40 Year issuance by ROI ■ Tightest ever spread achieved by ROI for a US$ 10Y issuance to date yet again (implied spread of +85.8 over 10Y UST) ■ Tightest ever spread achieved by ROI for a EUR 12 / long-12 Year issuance ■ Achieved zero to negative new issue concessions across all 3 tranches despite a crowded primary market on the day of bookbuild ■ The successful debut SDG Offering demonstrates Rol's commitment towards financing environmental and social projects in contribution to the 2030 National Development Agenda and to be aligned with the SDGs. Source: Ministry of Finance 167#169Mandalika, West Nusa Tenggara wonderful indonesia f indonesia.travel @indtravel indonesiatravel @indtravel www.indonesia.travel