BUDGETING IN A DECENTRALIZED
ENVIRONMENT
By Tri Budhianto
Republic of Indonesia
1
SHANGHAI, MARCH 2012
How does Decentralized Budgeting Contribute at
the Local and National Level Results
1. NATIONAL – LOCAL TRANSFER
2. HOW TO MAKE THIS EFFICIENT
3. HOW IS DECENTRALIZED BUDGETING CONTRIBUTE
TO IMPROVING SERVICES AT THE LOCAL LEVEL
AND IN ACHIEVING RESULT AT THE LOCAL AND
NATIONAL LEVEL
4. WHAT ARE THE CHALLENGES IN LOCAL BUDGETING
AND PLANNED REFORMS
2
Divided into
33 provinces
Delegation
Serving people
Providing servant and manager
Managing and developing areas
Transfer
Fund
Divided into
491 regions
Fiscal
Decentralization
3
NATIONAL – LOCAL TRANSFER
Big Problems
Imbalances
among
Regions due
to
differences
of
Characteristics
and Conditions
Population
Areas
Vertical
Fiscal
Imbalance
Horizontal
Fiscal
Imbalance
Natural Resources
Financial Needs & Capacity
NATIONAL – LOCAL TRANSFER
4
• To Minimize Problems
Vertical
Fiscal
Imbalance
Minimizing
gap between
central and
local
government
Horizontal
Fiscal
Imbalance
Reducing
fiscal
imbalance
among
regions
General
Allocation
Grant
Horizontal
Fiscal
Imbalance
Equalizing
public
service
provision
gap among
regions
Specific
Allocation
Grant
Revenue Sharing
5
NATIONAL – LOCAL TRANSFER
Fund Channeling of Transfer to Region
 Direct transfer from National Bank
Account to Regions Bank Account.
 Support utilization of local treasury
single account
- Revenue sharing
- General allocation Grant
- Specific Allocation Grant
 Support to finalize local regulation of local budget
 No letter of application needed, but reports of local
account disbursement  support local disbursement
and reporting sent to Central Gov (MoF)
NATIONAL – LOCAL TRANSFER
6
 Trilogy: Type of
group consisting of
three related units to
develop one theme
General
Allocation
Grant
Revenue
Sharing
Specific
Allocation
Grant
NATIONAL – LOCAL TRANSFER
 When Revenue
Sharing increase 
General & Specific
Allocation may
decrease
 The theme is to
minimize fiscal
imbalance between
regions or to
maximize fiscal
equalization
 This policy is
accommodated in the
formula & criteria of
grants
7
Increase the human resources capacity in government
financial management and planning process
Increase the role of Local Parliament in budgeting process
Increase transparancy in budgeting and implementation
Minimum standard of service and standard cost analysis
Reward and Punishment System : Key Performance
Indicators
Public Participation
8
HOW TO MAKE THIS EFFICIENT
BLOCK
GRANT
 RSh onTaxes except DBH Excise,
 RSh on Natural Resources except
Reforestation, and
 General Allocation Grant (DAU)
Utilized for funding activities in line with
needs and local priorities
Specific
GRANT
 RSh Excise 0n Tobacco Products,
 RSh Reforestation, and
 Specific Allocation Grant (DAK)
Utilized for funding activities in line with
certain programs/activities/sectors/fields
9
How does Decentralized Budgeting Contribute at the Local and National Level Results
 The Objective of the fund is to push forward local
government is to consistently increase quality of local
fiscal management, local economic growth, decrease
poverty and support effort to serve people better.
 Decentralized budgeting provide flexibility to local
government to determine priorities in accordance with
the conditions and resources of each region.
 Decentralized budgeting provide an opportunity
for local governments to develop the local economy.
 The specific grant has an important role to harmonize
national and local development. Its helps achieve the
national minimum standard of services. Beside that,
some specific grant becomes the main instrument to
encourage local development to fulfill the national
development priorities.
10
How does Decentralized Budgeting Contribute at the Local and National Level Results
THE CHALLENGES
HUMAN RESOURCES : CAPACITY DEVELOPMENT
INSTITUTION : CLARITY OF ROLE AND RESPONSIBILITY
INFORMATION SYSTEM : DATA AND MONITORING &
EVALUATION
REGULATION : HARMONIZATION OF REGULATIONS
KNOW HOW : STAKEHOLDERS KNOWLEDGE
11
WHAT ARE THE CHALLENGES IN LOCAL BUDGETING AND PLANNED REFORMS
Indonesia Archipelago
Thanks a Lot
Papua
Sumatera
Jakarta
Java
Kalimantan
Sulawesi
Bali
12