Technical NotesLocal Government Water and

Sanitation Budget Analysis

The extent to which local governments in Indonesia prioritize water and sanitation sector improvements is clearly evidenced in the resources allocated to these critical human services. Given the scale of investment required in the water sector, it is paramount that the local governments play an active role by improving the policy environment as well as providing direct, “on-budget” support where appropriate. Indeed, international experience in the development of the water sector shows that universal access requires a blend of public and private sources.

Toward this end, a fundamental objective of USAID’s Indonesia Urban Water, Sanitation, and Hygiene Project (IUWASH) is to bolster local government awareness of their responsibility to provide water and sanitation services to their constituents and advocate for a commensurate level

Using Public Budgeting Analysis to Advocate for Improved Water Supply and Sanitation Services

Water Treatment Facility in Gresik, East Java financed and constructed by private sector partner, PT. Drupadi.

of public investment. One aspect of this awareness building and advocacy process is the analysis of the level and form of local government investment in the water sector under annual municipal budgets (Anggaran Pendapatan dan Belanja Daerah, or APBD).

In addition to being a tool for awareness and advocacy, local government budget appropriations serve as an important indicator of the sustainability of IUWASH more broadly. In an era where public resources for middle-income countries such as Indonesia far exceed foreign aid, technical assistance programs such as IUWASH can only achieve impact at scale by leveraging domestic funds. Further, the appropriation of these funds demonstrates local government “co-investment” or “buy-in,” providing palpable evidence of a local counterpart’s commitment to change.

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The Budget Analysis ProcessHow does the IUWASH Project collect and analyze public budgetary data for water supply and sanitation? First, a locally-based Project staff member submits a request to the local government for a copy of the APBD once it is finalized for the January to December fiscal year. Once the document is obtained—usually in the form of a hard copy temporarily loaned out to the Project—a municipal finance specialist carefully reviews the entirety of the APBD, entering water and sanitation expenditures into a tracking template for each local government. Budget appropriations are classified according to the six different expenditure types presented in Figure 1 below.

Notably, while the Project collects data pertaining to “Other Sanitation Services”—including solid waste management and drainage—such allocations are excluded from municipal-wide totals given that these are not technical areas supported by IUWASH. As the final step, municipal data sets are combined by province to facilitate comparison and analysis by each regional Project Office.

The budget analysis process is replete with administrative and technical challenges, including the following:• ReadyAccesstoAPBD: Each local government

is very different in terms of the accessibility of “public” documents, particularly its budget. While more progressive municipalities post their entire budget online, many still require a protracted process rife with bureaucratic hurdles;

Figure 1: Water and Sanitation Expenditure Types in the APBD

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2. Public Works

3. Housing/ Settlement

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5. Environmental Health

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Health and Hygiene Awareness and Behavior Change

Water Supply

Water Resources Protection

Wastewater Management

Other Sanitation

Services

• Cross-SectorNatureofWaterandSanitationFunding: Funding for water and sanitation activities is spread across many departments and hundreds of sub-codes, making difficult to see the big picture of water sector spending. As indicated in the above graphic, no less than six different local government divisions may have water and sanitation line items in any one fiscal year:

• LackofStandardizedDescriptions: It is not always easy to distinguish the purpose of funds given the rather abrupt and non-standardized descriptions that accompany each line item; and

• FluctuationofBudgets: Wide variation from year to year makes determination of meaningful trends challenging, especially over short time horizons (2-3 years).

Taken together, these challenges highlight a broader issue pertaining to water and sanitation governance in Indonesia: transparency. Tracking where and how public resources are spent in the sector is complex and time consuming, often hindering accountability.

Trends and SuccessesSince Project inception, IUWASH has collected water and sanitation budget data for more than 50 local governments, including data for multiple Project years for local governments that have partnered with IUWASH from the outset. In this regard, Figure 2 (see page 3) presents the collective APBD allocation for water and sanitation line items for the approximately 30 local governments working IUWASH since 2011.

Overall, the results display an encouraging trend of increasing budget allocations to the water and sanitation sector. The first group of local governments collectively averaged about Rp 200 billion over the baseline period of 2009 to 2011, an amount that is now approaching Rp 400 billion in the 2013 APBD. Thus, while budget allocations for each respective local government wax and wane depending upon the types of projects and services in the pipeline for a given year, collectively, this set of local governments is allocating more and more funds to improving their water and wastewater services.

Given the complexities of the budgeting process and the myriad of factors influencing how funds are appropriated each year at the local government

level, it is difficult to directly attribute overall financing trends to IUWASH technical assistance alone. There are, however, individual success stories where Project activities have directly triggered investments in the water sector:

• In Tanjung Balai, North Sumatra IUWASH completed a technical and financial analysis of the proposed treatment plant, which ultimately led to a LG allocation of Rp 5 billion to construct the plant;

• In Kudus district, Central Java IUWASH assisted the PDAM to compile their 5 year business plan, which included the need for equity financing from the local government. The PDAM presented the business plan to the Bupati and they agreed to allocate Rp 16.5 billion over 5 years, including Rp 7 billion in the 2013 APBD;

• In Lamongan and Sidoarjo districts, East Java, IUWASH held “visioning workshops” with local leaders to discuss the status of water and sanitation services. Project staff presented the results of the budget analysis for sanitation spending, which helped to convince both governments that more resources were required. Lamongan allocated Rp 1.3 billion while Sidoarjo set aside Rp 600 million; and

• Finally, in Bekasi city, West Java IUWASH prepared a feasibility study for the Pondok Gede and Jatiasih water treatment facilities which was then used to advocate for an allocation of Rp 10.2 billion for land acquisition. Per Figure 3 at the top of the following page, budgets for water and sanitation have been steadily on the rise in Bekasi city over the past three years.

Figure 3: APBD Allocation for Water and Sanitation in Bekasi city, West Java.

Figure 2: Collective Water and Sanitation Budget Allocation for IUWASH Municipalities.

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Technical NotesLocal Government Water and Sanitation Budget Analysis

Indonesia Urban Water, Sanitation and Hygiene (IUWASH) is a five years development project funded by U.S. Agency for International Development (USAID) and implemented by Development Alternatives, Inc. (DAI).

For further information please contact:Indonesia Urban Water, Sanitation and Hygiene (IUWASH) Mayapada Tower 10th floor Jl. Jenderal Sudirman Kav. 28 Jakarta 12920, Indonesia Tel. +62-21 522 - 0540 Fax. +62-21 522 - 0539

www.iuwash.or.id www.facebook.com/iuwash twitter @airsanitasi

Looking Ahead: Budget Advocacy for Better Services Despite the above successes, much work remains to be done. While water supply and wastewater treatment budgets appear to be on the rise overall, those presented in Figure 2 still averaged below 1% of the respective total local government budgets in 2013. Put differently, LG water and wastewater budgets averaged only Rp 16,640 (about $1.75) per person in 2013, ranging from a low of Rp 2,400 ($0.25) to a high of Rp 86,000 ($9.05). In addition, only nine local governments were found to regularly invest equity (capital) directly in their utilities over the past few years, a best practice in terms of LG support to the water service provider.

Toward this end, IUWASH staff will continue to advocate for increased resources for the water and sanitation sector, looking for technical assistance

entry-points that have the greatest potential to leverage co-investments from local governments. These entry-points will include pilot programs that demonstrate successful service provision models, completion of technical and financial feasibility studies for capital expenditure projects, PDAM business plan preparation, and direct awareness-building with the local parliament and district head. Notably, these inputs must directly feed into the annual local government budgeting process, which is summarized below in Figure 4. Thus, timing is critical in order for new investment proposals to be vetted by relevant stakeholders and reflected in the following year’s APBD document.

As IUWASH enters the second half of implementation, the Project will continue to collect and analyze LG water and sanitation budgets on a yearly basis through 2015. As we have seen thus far, each budget has a story to tell.

Figure 4: Water and Sanitation Expenditure Types in the APBD.