Economist: Regional Bonds Only Effective for Financing Productive Projects

M. Rizal Taufikurahman, an economist at the Institute for Development of Economics and Finance (INDEF), stated that the issuance of regional government bonds is only effective for financing productive projects that offer economic benefits and measurable revenue streams.

Conversely, if used for routine expenditures, Rizal believes the benefits of issuing debt securities could potentially create challenges for regional fiscal stability in the future. “Regional bonds can be an effective financing instrument, but they are not a shortcut to compensate for weak regional fiscal capacity,” Rizal said when contacted in Jakarta on Friday.

According to Rizal, financing from debt securities should be utilised for projects such as transport, drinking water, hospitals, or public service infrastructure. If used to cover routine spending, operational deficits, or economically unviable projects, regional bonds are seen as merely shifting today’s fiscal burden into future obligations for interest and principal payments within the Regional Budget (APBD).

Furthermore, he noted that the greatest challenge lies in the disparity of capacity between regions. “Not all regional governments possess strong Local Genuine Revenue (PAD), credible governance, bankable project quality, or the ability to manage debt risks,” he added.

Rizal emphasised that the issuance of regional debt securities must be carried out very selectively, transparently, and accompanied by strict debt limits, project audits, and oversight of fund usage. If these conditions are not met, there are concerns that bond issuance could become a risky fiscal fulfilment strategy. “Without these prerequisites, regional bonds are risky and have the potential to transform from a development instrument into a source of moral hazard, project waste, and new fiscal pressure that ultimately must be borne by the community,” he concluded.