The region of Papua occupies a special place in Indonesia. It is the country's easternmost, largest and most sparsely populated region. Ever since its integration into Indonesia in 1969 Papua has been troubled by separatist movements and social unrest. Following Indonesia's transition towards democracy and decentralization in the late 1990s, the Special Autonomy Law for Papua was passed in 2001. This was aimed at solving the ongoing conflict and accelerating the economic development of the region. The special autonomy status carried with it an increased flow of resources to Papua. While this boost in fiscal resources is important in helping Papua "catch up", more attention needs to be paid to the quality and efficiency of public expenditure management. As history shows, economic growth and fiscal wealth alone will not be enough to reduce poverty and boost development outcomes in Papua. The region has experienced an average annual GDP growth of close to ten percent for the last fifteen years, and has had a substantial amount of revenues to spend. This stands in stark contrast to Papua's consistent underperformance in fighting poverty and raising human development outcomes: forty percent of Papuans still live below the poverty line, more than double the national average. One third of Papua's children do not go to school. Nine out of ten villages do not have basic health services with a health center, doctor or midwife. Although Papua's fiscal position will remain strong for the foreseeable future-Papua was the second richest province in fiscal terms, revenue inequalities are high. The Special Autonomy Fund could help close the revenue gap, if it was allocated to those kabupaten/kota that need it most.Tax and charge revenues in particular are low, both as a share of revenue and compared to national averages. Given the overwhelming magnitude of transfers, incentives to collect OSR are weak and are likely to remain low. Despite the large amount of overall resources available, budget deficits are common and borrowing is on the rise. Health, education and infrastructure outcomes are consistently below the national average, mainly because services do not reach the more remote and poorer parts of Papua. Meanwhile, some improvements have been made due to increased development spending. This report makes key recommendations in revenue and financing, expenditures, planning, budget, and financial management .
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