The Indonesian central government is preparing to cover the salaries of local government employees after several areas faced budget problems, allocating an initial budget of 1.8 billion dollars.
On September 14, 2026, at 2:54 PM, Bloomberg News reported that the Indonesian central government is preparing to take over the salary payments for hundreds of thousands of public school teachers and healthcare personnel who were previously paid by local governments, in order to alleviate the budgetary burden on various regions affected by cuts in central government funding.
Indonesian Finance Minister Purbaya Yudi Sadewah revealed to a parliamentary session on Monday that the government will gradually convert part-time contract employees of local governments to full-time civil servants, bearing their salaries for three years starting in 2027. This will help alleviate budgetary pressure on local governments.
The move comes after dozens of local authorities reported difficulties paying contract employees' salaries due to budget cuts from the central government, prompting the Jakarta government to consider increasing remittances and implementing additional fiscal support measures.
Data from the Indonesian National Civil Service Agency indicates that local governments nationwide have approximately 2.5 million contract employees, with a significant proportion of these being teachers and healthcare personnel.
The government estimates the project will cost around 31.1 trillion rupiah, or approximately $1.8 billion. However, Purbaya stated that this figure could ultimately increase and it has not yet been specified whether this is the budget for the entire three-year project or the amount required each year.
The plan comes at a time when local governments are facing declining remittances from the central government, after the government diverted its fiscal resources to support key policies of President Prabowo Subianto, including the free food program.
This year, transfer funds to local governments have been reduced to 697 trillion rupiah, or about 18% of the total budget, from 849 trillion rupiah in 2568, which at that time accounted for almost a quarter of public spending.
For next year, the government has allocated 735 trillion rupiah for remittances to local authorities, keeping the proportion relative to overall expenditure similar to this year.
Cuts in central funding have forced some areas to raise local taxes, which led to protests last year. Meanwhile, some areas are struggling to pay staff salaries, raising concerns about a potential impact on public services.
Furthermore, the government plans to use PT Sarana Multi Infrastruktur (SMI), the state-owned infrastructure financing company, as a lending channel to local governments during the period when the Ministry of Finance is delaying the transfer of some revenue-sharing agreements (DBH) in the coming years, in order to maintain the country's fiscal stability.
Under this guideline, local governments can borrow money from the SMI, while the central government is responsible for debt repayment. This provides regions with an alternative source of funding during periods when remittances and revenue shares from the central government are reduced or deferred.
Purbaya stated that the measure aims to prevent regional development from stalling while maintaining the fiscal sustainability of the central government. SMI will closely monitor funded projects to ensure they are being implemented as planned.
Reference: www.bloomberg.com
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