Finance Minister Purbaya Yudhi Sadewa said that widespread corruption in regional governments is one of the key reasons behind a significant reduction in the Transfer to Regions (TKD) budget allocation for next year, while simultaneously highlighting inefficiencies and poor spending quality at the local government level.

Speaking at the National Leadership Meeting of the Indonesian Chamber of Commerce and Industry (Kadin) on Monday, December 1, 2025, Purbaya said that after discussions with district heads and mayors nationwide, none could justify an increase in TKD allocations for the coming year.

“Many funds in the regions are being corrupted. Therefore, it’s no surprise that regional transfer funds are being cut this much. The top leadership has lost confidence in the regions,” he said.

Despite the sharp reduction, Purbaya pledged to recommend restoring higher TKD funding to President Prabowo Subianto ‒ but only if local governments demonstrate better spending performance. He emphasized that the evaluation would rely on data from the fourth quarter of 2025 through the first quarter of 2026.

The Ministry of Finance recorded that as of last month, regional budget spending stood at only 63.78 percent of the Rp902.73 trillion (US$54.3 billion) allocation for 2026. Capital expenditure performance was the weakest, reaching just 41.47 percent or Rp88.32 trillion out of the Rp212.97 trillion budgeted.

“If in the last quarter of this year and the first quarter of next year regional spending is on-target, free from corruption, and contributes to the economy, I will tell the President that the local governments are becoming disciplined. Then TKD can be increased again,” Purbaya said.

Under the 2026 draft state budget (RAPBN), TKD is set at Rp650 trillion, marking a 24.8 percent decline from the Rp848.52 trillion allocated in 2025.

Meanwhile, Masyita Crystallin, Director General for Financial Sector Stability and Development, said that the reduction is also linked to the restructuring of priority programs. Initiatives previously managed at regional levels are now being handled directly by technical ministries.

“This will vary depending on the programs and the capacity of each region,” Masyita said at the Katadata Policy Dialogue event on August 15, 2025. She noted that not all regions will face cuts, and some may even see increases aligned with their priority development needs.

The government expects local administrations to improve transparency, accelerate spending, and ensure funds support economic recovery ‒ key conditions for the possible reinstatement of higher TKD allocations in the following budget cycle.