Economist: Additional regional budget must be accompanied by governance improvements

Jakarta (ANTARA) - M Rizal Taufikurahman, Head of the Institute for Development of Economics and Finance (Indef) Centre for Macroeconomics and Finance, believes the plan to add to the Transfers to Regions (TKD) scheme must be accompanied by improvements in fiscal governance to enhance the independence of budget management so that it can deliver a sustainable economic impact.

“If transfers are merely increased without improving governance, then TKD risks becoming an instrument that enlarges spending without strengthening regional fiscal independence,” Rizal told ANTARA by telephone in Jakarta on Wednesday.

According to Rizal, additional TKD without governance reform could deepen regional dependence on the State Budget (APBN).

Meanwhile, amid tight APBN needs, the disbursement of regional budgets must demonstrate measurable economic impact.

Rizal also observed that many regional governments still hold high levels of unspent budget surplus (SiLPA), budget absorption remains suboptimal, and spending structures are still dominated by operational rather than productive expenditure.

“This means the main problem is not merely a lack of budget, but the poor quality of budget management,” he said.

To improve governance, Rizal recommended shifting the transfer paradigm towards a performance- and outcome-based transfer scheme.

Under such a scheme, additional incentives would be given to regions able to demonstrate positive achievements across certain indicators.

Examples of these indicators include success in raising own-source regional revenue (PAD), improving the quality of public services, attracting investment, creating jobs, and reducing poverty.

Conversely, Rizal said, regions with weak governance should not continue to receive additional funds without rigorous evaluation.

“This approach will create fiscal discipline while reducing the moral hazard of prolonged dependence on the central government,” said Rizal.

Earlier, Minister of Finance Purbaya Yudhi Sadewa announced plans to increase TKD allocations for 490 regional governments facing budget constraints to fund mandatory spending.

However, implementation of the plan still awaits a decision from President Prabowo Subianto.