Sovereign wealth fund for SDGs financing in Indonesia post oil and gas era

Aug 10, 2017


To reduce its dependence on oil and gas resources, Musi Banyuasin district on Thursday signed an agreement with the UNDP to work on the establishment of sovereign wealth fund to achieve the Sustainable Development Goals (SDGs) and address inequality.  

Lying in the heart of South Sumatra province, Musi Banyuasin is home to some of the country’s biggest reserves in oil, gas and minerals such as coal. The district also has many palm oil and rubber plantations. Once established, Musi Banyuasin will become the first district in Indonesia to have the sovereign wealth fund.

The District Head of Musi Banyuasin, Dodi Reza Alex Nordin said all development stakeholders must find alternative sources of financing beyond non-renewable energy, to avoid the ‘resource curse’.

“Indonesia cannot hold any more illusions about the continuation of its non-renewable resources. Even though extraction of such resources has brought Indonesia great wealth, we cannot depend on it for our future. We cannot even rely heavily on extraction of large volumes of natural resources now because we need to use the resources sustainably and protect the environment,” said Dodi Reza.

Despite being endowed with rich natural resources, the human development index of Musi Banyuasinin is lower than the national average, while poverty and inequality are considerably higher, highlighting that many residents are not able to benefit from the district’s wealth.

Local governments have a bigger budget surpluses due to oil and gas revenues, according to the Ministry of Finance. However, they are not using this fiscal capacity optimally. Sovereign wealth funds can help governments plan for the future and ensure that when natural resources are exhausted, the people and government have other resources and options to draw on.

The joint assessment conducted by UNDP Indonesia and the Institute for Economic and Social Research discovered that 13 provinces and 20 districts have the fiscal capacity to establish a SWF. Most of these eligible subnational areas are oil, gas and mineral producers in Indonesia.

“Indonesia's reserve of non-renewable resources could start running out as early as 2030. Establishing a sovereign wealth fund could help local governments invest their surplus funds for future generations or use them for more inclusive sustainable development. By addressing these issues now, local governments will be more prepared for the future. That's why we are delighted to work with Musi Banyuasin because the learning from establishing this fund will be useful for a number of other districts also,” UNDP Indonesia Deputy Country Director, Francine Pickup said in her welcoming remarks.

The MoU provides a framework of cooperation between Musi Banyuasin district and UNDP. This collaboration will work towards the achievement of sustainable natural resource management for SDGs.

UNDP is ready to support Musi Banyuasin district and Indonesia more broadly to harness their extractive industries for a people-centered and sustainable development process. UNDP supports the sustainable management of natural resources by improving their governance, through inclusive participation of all stakeholders, promoting accountability and transparency, while ensuring environmental sustainability and social cohesion. Events such as this one also promote the sharing of experiences between countries on the management of extractives.  

Following the signing of the MoU, UNDP hosted a panel discussion on sovereign wealth fund with the following participants: the Ambassador of Timor Leste for Indonesia - Mr. Alberto XP Carlos, First Secretary of The Royal Norwegian Embassy, Mr. Borgar Olsen Tormodsgard, District Head of Musi Banyuasin , Mr. H. Dodi Reza Alex Noerdin, Deputy Head of Musi Banyuasin District - Mr. Benni Hernedi and UNDP Indonesia Deputy Country Director, Ms. Francine Pickup

 

Contact information


UNDP Indonesia
Tomi Soetjipto (suryo.tomi@undp.org)
Communication Specialist, HP 0811 888814