Jakarta. Deputy Finance Minister Juda Agung on Monday warned that many regional economies remain overly dependent on extractive industries, weak local spending quality, and limited fiscal capacity, urging stronger coordination between central and local governments to sustain national economic growth.

Speaking at the 2026 National Conference on Regional Economic Development, Juda Agung said regional economies continue to play a critical role in supporting Indonesia’s broader economic expansion, but structural weaknesses remain across many provinces.

“One major issue is that several regions remain highly dependent on extractive sectors such as mining and primary commodities, making them vulnerable to price fluctuations,” Juda said.

“Regional economic diversification and innovation are therefore key.”

Juda said the first major challenge is the lack of economic diversification in many regions. Although economic growth has spread across Indonesia geographically, not all regions have the same level of resilience, particularly those still relying heavily on natural resources.

The second challenge, he added, is the poor quality of regional government spending, with local budgets still dominated by personnel and goods expenditure rather than productive investments.

“On average, around 70% of regional spending is allocated to personnel and goods expenditure, while capital expenditure remains relatively limited,” Juda said.

He also highlighted the recurring issue of delayed spending realization, where regional budgets are typically underutilized at the beginning of the year before surging toward year-end.

“This weakens the impact of regional budgets on local economic activity,” he said.

The third challenge involves limited fiscal capacity among regional administrations, many of which remain highly dependent on transfers from the central government due to weak locally generated revenue, or PAD.

According to Juda, this condition has directly hampered the implementation of strategic regional projects.

“Regional budget absorption is often suboptimal. Transfer funds are not always well targeted and tend to be disbursed slowly due to capacity constraints and lengthy procurement procedures,” he said.

“As a result, the economic stimulus effect at the local level becomes less effective.”

To address these issues, the Finance Ministry has prepared three key measures, starting with optimizing transfers to regional governments.

As of April 31, 2026, regional transfer realization had reached Rp 256.8 trillion, equivalent to 37% of the annual allocation. The funds are used to finance basic public services, including salaries, school operational assistance, early childhood education programs, healthcare, and teacher allowances.

The ministry is also pushing alternative financing schemes for regional development projects through state-owned infrastructure financier Sarana Multi Infrastruktur (SMI).

Under the scheme, regional development projects are no longer expected to rely solely on local budgets. SMI financing has supported the construction of regional public hospitals, roads, bridges, tourism areas, and other infrastructure projects.

By March 2026, regional financing commitments through SMI had reached Rp 37 trillion.

“SMI financing has been quite effective in supporting regional economic growth from the beginning of the year,” Juda said.

“Repayment installments can later be sourced from revenue-sharing funds provided by the central government once disbursement occurs.”

The third policy focuses on strengthening local revenue collection through regional tax modernization, central-local data integration, improved administration of regional taxes and levies, and capacity building for local governments.

Juda said the Finance Ministry also continues to support regional administrations through fiscal studies, transfer fund evaluations, and data-driven policy recommendations.

“Central and regional fiscal synergy is not merely coordination. It is an orchestration between the state budget, regional budgets, private financing, the financial sector, and businesses. We must move together in the same rhythm,” Juda concluded.

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