DPD Warns Government: Regional Finances are Reaching a Breaking Point
Members of the Regional Representative Council (DPD) of the Republic of Indonesia have issued a stern warning to the government regarding the condition of regional finances, which are deemed to be increasingly ‘suffocated’. Pressure on state revenue and rising financing burdens are feared to be narrowing the regional fiscal space, ultimately hindering development and local economic stability.
Mirah Midadan Fahmid, a DPD member representing the West Nusa Tenggara (NTB) constituency, revealed that the narrowing of the Regional Transfer (TKD) space needs immediate anticipation. She highlighted that the tax revenue ratio remains low at 10.38% of GDP, while debt financing needs have reached Rp876.3 trillion, or 131% of the deficit.
“If revenues do not meet targets, while financing needs and interest must still be met, there will certainly be adjustments to more flexible expenditure components,” Mirah stated during a working meeting of the DPD RI Committee IV on Monday.
Mirah noted a significant downward trend in the proportion of TKD. Based on the data presented, the proportion of TKD dropped from 25.7% in 2024 to just 17.9% in the 2027 Draft State Budget (RAPBN). This condition is considered highly burdensome for regions with high dependency on the central government.
“In the regions, particularly West Nusa Tenggara, I feel we are already gasping for air and finding it difficult to carry out physical development,” she asserted. She also highlighted that the realisation of Physical Special Allocation Funds (DAK Fisik) in NTB fell by 13.66% year-on-year as of the first semester of 2026.
Echoing Mirah’s concerns, Rudy Tirtayana, a DPD member from the South Papua constituency, questioned the amount of additional TKD. He reminded the government of previous promises regarding potential additional TKD of between Rp40 trillion and Rp90 trillion, yet the latest explanation only indicated a range of approximately Rp38 trillion to Rp39 trillion.
As an alternative solution, Rudy encouraged the discourse on issuing regional bonds. “If bonds are cheaper, this could serve as an alternative for regional financing to accelerate development,” he said.
Beyond budgetary issues, Stefanus Liow, a DPD member from the North Sulawesi constituency, highlighted bureaucratic hurdles. He assessed that there is still significant regulatory overlap between the central and regional governments, particularly in the process of regional budget (APBD) consultations and the implementation of strategic programmes such as Free Nutritious Meals (MBG) and the Red and White Cooperative.
“There is still overlapping regulation and programming from the centre that impacts regional economic growth,” said Stefanus. He requested that the government clarify the division of roles to avoid restricting the operational space of regional governments.
Responding to these concerns, former Minister of Finance Purbaya Yudhi Sadewa explained that in the 2027 State Budget, the government has allocated Rp735 trillion for TKD. This figure actually represents an increase compared to the 2026 outlook of Rp696.9 trillion.
Purbaya emphasised that although the percentage share appears to decrease, the nominal amount spent in the regions has not decreased due to an increase in central government spending in the regions, which has reached Rp1,445 trillion.
The government is also preparing an innovative financing scheme through cooperation between regional governments and MSMEs. Under this scheme, regions could undertake development first, with payments made by the central government through a mechanism of gradual reduction in Revenue Sharing Funds (DBH).
“We will implement innovative financing so that regions can continue to develop without endangering fiscal policy,” concluded Purbaya.