Centralisation of State Spending and Regional Banking Liquidity

Since 2026, there has been a significant change in the structure of the State Budget (APBN). This structural shift primarily affects State Expenditure, involving both Central Government spending and Transfers to Regions (TKD).

The government’s theme for budget allocation policy since 2026 is the synergy between central and regional government spending to support priority programmes. Through this theme, the government aims to emphasise that central and regional programmes constitute a single, unified package. Regional programmes must align with central government initiatives, and vice versa, to ensure they meet priority needs in the regions.

There are at least three objectives the government seeks to achieve through this change in budget allocation policy. First, to make the use of state cash more effective and efficient amidst the relatively large number of priority programmes. Second, to strengthen fiscal synergy through the synchronisation of central and regional planning and budgeting to improve the quality of state expenditure. Third, to encourage regional fiscal independence through innovation in increasing regional revenue and utilising various financing sources for regional development.

In terms of implementation, the state expenditure allocation policy has several implications for the overall expenditure posture. The primary implication is a shift in expenditure allocation. In 2026, central government spending saw a significant increase, accompanied by a reduction in TKD allocations. In 2026, the central government budget increased by Rp563.3 trillion, rising from a realised Rp2,586.4 trillion in 2025 to Rp3,149.7 trillion in the 2026 APBN.

This high increase in central government spending resulted in a decrease in TKD funds, from a realised Rp849 trillion in 2025 to Rp693 trillion in the 2026 APBN, representing a drop of Rp156 trillion. In the 2027 Draft State Budget (RAPBN) submitted to the House of Representatives (DPR RI) on 14 August 2026, the allocation pattern for central government spending and TKD remained relatively similar. In the 2027 RAPBN, central government spending reached Rp3,362.2 trillion, an increase of Rp212.5 trillion compared to the 2026 APBN. Meanwhile, the TKD allocation in the 2027 RAPBN reached Rp735 trillion, an increase of Rp42 trillion compared to 2026. Despite this increase, it remains lower than the 2025 realisation.

Implications of Liquidity from the Shift in State Expenditure Allocation

The shift in allocation between central government spending and TKD does not only alter the pattern of state budget management but also shifts the pattern of banking liquidity management, particularly regarding liquidity derived from government funds (central and regional). While this shift does not reduce the circulation of money in the regions, from a management perspective, the reallocation has created an imbalance in managed funds across different banking groups.

Funds used for central and regional government spending utilise different cash management systems. According to regulations (PMK), funds managed by the central and regional governments must be placed in commercial banks. These can include state-owned commercial banks (Bank Persero), private banks, or regional development banks (BPD). Both central and regional governments have the discretion to place their managed funds in any commercial bank.

In practice, central and regional governments have their own preferences for fund placement. The central government, through Ministries/Agencies (K/L), usually chooses Bank Persero as its cash management partner, while regional governments typically use BPD. However, it remains possible for BPDs to manage funds from vertical K/L agencies in the regions, and for Bank Persero to manage regional government funds. TKD funds, which are the right of regional governments, are generally managed through BPDs. The larger the TKD received by a region, the greater the potential for BPD managed funds.

When the government shifts the allocation of TKD to the budget of K/L agencies, the managed funds of BPDs also potentially decrease if this policy is accompanied by a shift in cash management. If the movement of fund management from BPD to other banking groups occurs, this policy could indirectly create a structural imbalance in liquidity control across banking groups.

Currently, the phenomenon of liquidity imbalance between banking groups is already occurring. Based on publication data as of July 2026, national third-party funds (DPK) in commercial banks reached Rp10,275 trillion, an increase of Rp265.6 trillion compared to December 2025’s position of Rp10,009 trillion. Although DPK increased, the performance of DPK acquisition for each banking group tends to be uneven. As of July 2026, the position of pure DPK for Bank Persero reached Rp4,499 trillion, an increase of Rp559.5 trillion. ‘Pure DPK’ here refers to DPK that does not include elements of funds from the central government and non-residents. Meanwhile, if all increases in central government DPK, which reached Rp59.4 trillion, are assumed to be managed entirely by Bank Persero, then the DPK increase for Bank Persero reaches Rp618.9 trillion. While the growth of DPK for all commercial banks was Rp265.6 trillion, the growth of DPK for Bank Persero exceeded Rp600 trillion. This condition implies that other banking groups have experienced a decline in their DPK acquisition performance.