Indonesia’s regional governments are sounding the alarm over significant cuts to central government transfers, warning of stalled infrastructure projects and payroll challenges. With reductions reaching up to 70% in some provinces, governors are calling for urgent reevaluation of the 2026 fiscal allocations. The debate underscores a growing tension between national budget discipline and local development needs.
Key Facts & Background
- The Association of Indonesian Provincial Governments (APPSI) met with Finance Minister Purbaya Yudhi Sadewa to protest cuts in Transfer to Regions (TKD) allocations.
- 18 governors attended the meeting in person, 15 were represented, and 5 provinces were absent.
- Gubernor Sherly Tjoanda of North Maluku stated that TKD for her province dropped from Rp10 trillion in 2025 to Rp6.7 trillion in 2026, with the largest cut in the Revenue Sharing Fund (Dana Bagi Hasil/DBH).
- Sherly emphasized that current TKD levels only cover routine expenditures, leaving little room for infrastructure development such as roads and bridges.
- Cuts across provinces reportedly range from 20–30%, with some districts in Central Java experiencing reductions of up to 60–70%.
- Gubernor Muzakir Manaf of Aceh reported a 25% budget cut and urged reconsideration to sustain economic growth.
- APPSI Chair Al Haris (Governor of Jambi) highlighted that regions with low local revenue (PAD) are struggling to pay civil servant salaries, especially for PPPK (contract-based government employees).
- Al Haris noted that the fiscal strain is forcing regions to prioritize basic operations over strategic development goals.
- Minister Purbaya responded positively, promising to evaluate TKD allocations during the 2026 fiscal year despite their current legal status under the national budget law (APBN).
Strategic Insights
The widespread concern over TKD reductions reveals a critical fault line in Indonesia’s fiscal decentralization framework. While the central government seeks to manage macroeconomic stability and optimize spending, regional governments face mounting pressure to deliver essential services and infrastructure with shrinking resources. This disconnect threatens to undermine the effectiveness of decentralization, which relies on adequate and predictable funding to empower local governance.
The sharp decline in DBH and other transfer components disproportionately affects provinces with limited own-source revenue. For regions like North Maluku, Aceh, and parts of Central Java, TKD is not just supplemental—it is foundational. Cuts of 25–70% jeopardize not only capital projects but also basic administrative functions, including payroll for PPPK employees. This fiscal squeeze risks eroding public trust, stalling local development, and widening regional disparities.
Moreover, the timing of these cuts—amid ongoing recovery efforts and rising infrastructure demands—could dampen economic momentum. Local governments are key implementers of national priorities, from connectivity to social welfare. Without sufficient funding, their capacity to contribute to national growth targets diminishes. The situation calls for a more dynamic and responsive intergovernmental fiscal system, one that balances national constraints with local realities.