Indonesian Regions Struggle with Financial Dependence

Minister Calls for Fiscal Independence

Indonesia's Minister of Home Affairs, Tito Karnavian, has highlighted the concerning state of regional financial independence in the country. Speaking at the 'Semangat Tahun Baru 2026' event on January 14, 2026, Tito revealed that a staggering 90% of Indonesia's regions (493 areas) continue to operate with weak fiscal capacity ¹

. This means they are heavily reliant on financial transfers from the central government rather than generating their own revenue.

Current Fiscal Capacity Landscape

The minister provided a breakdown of regional fiscal capacity across Indonesia:

• Weak fiscal capacity: 493 regions (90%)
• Strong fiscal capacity: 26 regions (5%)
• Moderate fiscal capacity: 27 regions (5%)

A region is considered to have strong fiscal capacity when its Pendapatan Asli Daerah (PAD) or local revenue exceeds the financial transfers it receives from the central government. Tito emphasized that achieving this level of fiscal independence is crucial for regional development and sustainability.

Addressing Regional Fiscal Challenges

Tito Karnavian also addressed the issue of excessive regional spending. He revealed that some regions have been allocating as much as Rp 1 billion (approximately USD 64,000) per day solely for food and beverages ¹

. The minister stated that such extravagant spending would be cut during the review of regional budgets (APBD).

Path Forward

The Minister stressed that both the central and regional governments must work together to improve fiscal independence. For provinces, the Ministry of Home Affairs directly reviews their budgets. For districts and municipalities, governors are responsible for oversight, using guidelines from the ministry.

Implications for Regional Development

The push for greater fiscal independence has significant implications for regional development in Indonesia. Regions with stronger local revenue generation capabilities are likely to have more control over their development priorities and be less vulnerable to fluctuations in central government funding.