Indonesia Covid–19 Observatory, Brief No. 1 - Ex–ante Poverty & Distributional Impacts of Covid–19 in Indonesia

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G OI’s response to the crisis has been strong with budgetary allocations on new relief measures implying an approximate doubling of the spending on core social assistance. Measures to mitigate adverse impacts among the poor and vulnerable include vertical and horizontal expansion and repurposing of several existing social assistance programs, as well as addition of new ones.
Most of the measures target households in the bottom 40 percent including those that were not covered by existing programs.1 New programs have been introduced to address the needs of those who reside in areas with high rates of infection and mobility restrictions (Sembako for Jabodetabek); the needs of the majority of poor and vulnerable who live in rural areas (reallocation of the Dana Desa funds for UCT) and those that lost work and wished to undertake skills training (Kartu Pra Kerja). Most of the programs will in principle be implemented for a duration of between 3 and 12 months.
These generous measures approximately double GOI’s spending on core social assistance relative to that in 2018.
This emergency response has the potential to mitigate the pandemic's impact on the poor and vulnerable population in Indonesia. World Bank (WB) modelling of ex-ante poverty impacts of the pandemic shows that if the planned economic relief measures are fully delivered to the intended target population and people are able to return to work by the third quarter of 2020, then the poverty rate could decline from 9.4 percent in 2019 to between 8.2 and 9.0 percent in 2020.2 This suggests that irrespective of whether the overall macroeconomic impact of the pandemic is mild (0 percent growth) or more severe (-2 percent growth), the fiscal stimulus may pack enough punch to shield the poor and mitigate the welfare loss of households in the bottom 40 percent of the distribution. (Figure 1)
But how well this potential will be realized depends crucially on the performance of the targeting and delivery systems. Such a large-scale expansion of social assistance programs implies additional burden on delivery systems, and this can affect the speed of rollout and program realization. Some of the newer programs such as BLT, BLT-Dana Desa are designed to provide safety nets to affected households who are not already covered by some of the existing programs such as PKH and Sembako. Ensuring that the targeting mechanism correctly identifies and delivers assistance to the deserving households will be equally important in determining how successfully this package of programs shields the poor.
Without GOI's emergency economic support measures for households, Covid-19 could push as many as 8 million Indonesians into poverty. The same modeling exercise also shows that without the emergency social assistance and economic support measures for households, Covid-19 could push between 5.5 and 8 million Indonesians into poverty in 2020. This would imply a potential wiping out accumulated gains in poverty reduction achieved over the last seven years. (Figure 2) What the actual impact ends up being between these extremes depends crucially on how effectively this assistance is delivered during the remainder of the year.