Indonesian Regional Governments Urged to Seek Creative Financing Alternatives

A significant number of regional governments across Indonesia, from districts to provinces, are grappling with low fiscal capacity, resulting in a heavy reliance on funds transferred from the central government. Agus Fatoni, Director General of Regional Financial Management at the Ministry of Home Affairs, categorized regional fiscal conditions into low, medium, and high, with the majority falling into the low category. This low fiscal status directly translates to a high dependency on central government transfers.

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This means the dependency of regional governments on central government funds is very high.

Fatoni explained that a balanced fiscal condition indicates moderate dependency, while a higher proportion of locally generated revenue (Pendapatan Asli Daerah - PAD) signifies a strong fiscal position and reduced reliance on central funding. He cited DKI Jakarta as an example of a fiscally strong region, where PAD constitutes 80.71% of its revenue, with central transfers making up only 19.29%. Conversely, some regions, particularly in Papua, exhibit weak fiscal conditions, intensifying their dependence on the central government.

To address this, regional governments are being urged to innovate and explore alternative financing options, a concept termed 'creative financing.' Fatoni acknowledged that the current year has seen numerous fiscal dynamics and declines due to various global, local, and regional factors. These fluctuations underscore the need for all regions to optimize their financial management. This involves two key strategies: increasing revenue and ensuring more effective and efficient spending to maintain government operations, maximize development, improve public services, and enhance community welfare.

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Therefore, this fiscal position (weak) makes the dependency on the center stronger. So, regions are asked to be creative, including creating alternative financing, namely creative financing.

Muhammad Rifqinizamy Karsayuda, Chairman of Commission II of the House of Representatives, suggested evaluating regional financial performance based on two indicators: revenue realization and expenditure realization. He noted that oversight often focuses solely on expenditure absorption without adequately assessing revenue generation. Therefore, a dual focus on both revenue and spending is essential for robust regional financial management.

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We often only check the oversight of expenditure realization. We just want to ensure budget absorption without checking revenue realization.