Jakarta. The government cut direct transfers to regional administrations after finding that much of the funding was not being spent effectively or on its intended targets, Finance Minister Purbaya Yudhi Sadewa said Thursday, as Jakarta shifts more responsibility for regional infrastructure development to the central government.

President Prabowo Subianto had instructed the government to ensure that transfers to regions were used efficiently and effectively, particularly for infrastructure development. However, Purbaya said the implementation had revealed problems in how some regional governments allocated and spent their budgets.

“It was quite clear at the time that allocations in the regions were not reaching the right targets and spending was also not appropriate. So, some of the funds were pulled back to the central government, which then spends them on infrastructure development in the regions,” Purbaya said at the 100 Indonesian Economists Forum 2026 at Hotel Indonesia Kempinski in Jakarta.

Actual transfers to regional governments reached Rp 849 trillion ($48.22 billion) in 2025 before falling to Rp 693 trillion in 2026. Under the proposed 2027 state budget (RAPBN), transfers to regions are set at Rp 735 trillion, up 5.5% from the 2026 outlook of Rp 696 trillion.

Although the allocation remains below the 2025 realization, Purbaya said the central government was increasing its spending on infrastructure projects in the regions, meaning the overall level of economic activity outside Jakarta would not necessarily decline.

“So, in net terms, economic activity in the regions is not actually decreasing because the central government is providing more funding for infrastructure development,” he said.

The government is also seeking to ease other fiscal pressures faced by regional administrations, particularly the burden of paying civil servants under the government employee with work agreement, or PPPK, scheme.

In early August, the central government injected an additional Rp 20.5 trillion into regional administrations that had begun facing difficulties in paying the contract-based government employees, known locally as PPPK’s salaries.

“We did this in early August, when some regions were starting to face difficulties paying salaries. President Prabowo provided an additional Rp 20.5 trillion from the central government to the regions so they could breathe easier,” Purbaya said.

Starting in 2027, the central government will also take over the payment of PPPK salaries, with part-time PPPK workers potentially transitioning into full-time employees or becoming central government employees. The government has prepared Rp 31 trillion for the additional payroll spending.

“The burden on regional governments for paying certain workers has been shifted to the central government, which will also ease pressure on regional budgets,” Purbaya said.

The Finance Ministry has also assigned state-owned infrastructure financing company Sarana Multi Infrastruktur, or SMI, to provide loans to regional governments for infrastructure projects.

Under the scheme, regional administrations can borrow from SMI to fund infrastructure development, while repayments can later be made gradually through deductions from future transfers to the regions. Purbaya said the arrangement was designed to ensure that borrowed funds were spent on projects that created tangible assets.

“They can borrow from company like SMI, and we can provide funding to SMI. The loans can then be repaid each year gradually through regional transfers. That way, the money is actually used to create assets. That is the approach we are taking going forward,” he said.

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