Indonesia’s Finance Minister, Purbaya Yudhi Sadewa, has revealed a significant 24% reduction in regional transfer funds (TKD) allocated for the upcoming year, primarily attributing this decision to rampant corruption within regional governments. Beyond graft, the Minister highlighted concerns regarding the inefficient and misdirected nature of regional spending, which further prompted the budget adjustments.
In extensive dialogues with various regents and mayors concerning these TKD budget cuts, Purbaya noted a striking inability among all level II regional heads to present compelling justifications for an increase in their allocations for the next fiscal year. This lack of persuasive arguments underscored the systemic issues at play.
“A substantial amount of money is being corrupted by regional governments. Therefore, it’s hardly surprising that regional transfer funds are being cut by such a large margin. The highest leader no longer trusts the regions,” Purbaya asserted during the National Leadership Meeting of the Indonesian Chamber of Commerce and Industry (Kadin) on Monday, December 1.
Despite these serious concerns, Purbaya expressed his commitment to recommend an increase in next year’s TKD budget to President Prabowo Subianto. This recommendation, however, comes with a strict condition: regional spending must demonstrate significant improvement from the last quarter of the current year through the first quarter of the next. This improvement must manifest in spending that is on target, free from corruption, and delivers tangible economic impact.
The Minister elaborated that the realization data for the Regional Revenue and Expenditure Budget (APBD) from October 2025 to March 2026 will be the definitive factor in determining the exact amount of TKD for the subsequent year. This period serves as a critical performance assessment window for regional administrations.
According to data from the Ministry of Finance, regional spending realization had only reached 63.78% of the 2026 ceiling, equating to Rp902.73 trillion, as of last month. Notably, capital expenditure exhibited the lowest realization rate, reaching a mere 41.47% or Rp88.322 trillion out of an allocated Rp212.97 trillion. This highlights a particular challenge in the implementation of long-term development projects.
“If, from the last quarter of this year to the first quarter of next year, spending is on target, not corrupted, and impacts the economy, I will confidently inform the President that regional governments have achieved fiscal discipline. Consequently, the TKD budget can once again increase,” Purbaya affirmed, outlining the path for regions to regain financial support.
The TKD budget outlined in the 2026 State Budget Draft (RAPBN 2026) stands at Rp650 trillion, marking a 24.8% decrease compared to the 2025 State Budget (APBN 2025), where the government had earmarked Rp848.52 trillion for regional transfers. This substantial reduction underscores a strategic shift in fiscal policy.
Offering an additional perspective, Masyita Crystallin, from the Directorate General of Fiscal Balance, explained that the reduction in regional transfer values is also linked to evolving priority program needs. She clarified that certain priority programs, previously decentralized and spread across various regions, are now being partially managed and executed by technical ministries at the central level.
“This approach will vary greatly, tailored to the specific programs and the existing capacities within each region,” Masyita stated during the Katadata Policy Dialogue titled ‘Our APBN Direction’ on Friday, August 15. This suggests a more targeted and centralized approach to national development initiatives.
Nonetheless, Masyita clarified that not all regions will experience cuts. She added, “In fact, in some regions, allocations continue to rise, adjusted to meet the specific requirements of priority programs implemented in those areas.” This indicates a nuanced application of the new fiscal policy, acknowledging varying regional needs and performance.
Summary
Finance Minister Purbaya Yudhi Sadewa announced a significant 24% reduction in regional transfer funds (TKD) for the upcoming year, primarily attributing this decision to rampant corruption and inefficient spending within regional governments. He noted that regional heads failed to provide compelling justifications for increased allocations, stating that “a substantial amount of money is being corrupted” and the highest leadership no longer trusts the regions. This substantial cut decreases the TKD from Rp848.52 trillion in 2025 to Rp650 trillion in the 2026 draft budget, reflecting a strategic shift in fiscal policy.
Despite these cuts, Minister Purbaya committed to recommending a TKD increase to President Prabowo Subianto, conditional on significant improvement in regional spending from the last quarter of this year through the first quarter of next, ensuring it is on target, corruption-free, and economically impactful. The exact amount will be determined by APBD realization data from October 2025 to March 2026, as current figures show only 63.78% spending realization. Additionally, the reduction is partly due to the centralization of some priority programs, though some regions may still receive increased allocations based on specific needs.
