Indonesia is set to adjust its fiscal management strategy for regional governments by increasing the debt financing ceiling to 0.18% of the gross domestic product (GDP) for the fiscal year 2027. This marks a rise from the previous limit of 0.11% set for 2026. Additionally, the government has determined that the maximum regional budget deficit should not exceed 2.5% of GDP.

The new financial parameters are laid out in Finance Minister Regulation No. 76/2026, which specifies borrowing and budget deficit requirements for regional governments in 2027. Under this regulation, regional governments are required to maintain a minimum debt repayment capacity ratio of 2.5. Furthermore, their cumulative debt financing, along with any planned new borrowing, must not exceed 75% of the previous year’s regional budget revenue, excluding funds designated for specific purposes.

To ensure compliance and transparency, regional governments must report their cumulative debt financing and repayment obligations to the finance minister and the minister responsible for domestic government affairs every six months. The deadlines for these reports are set for July 31, 2027, for the first half of the year, and January 31, 2028, for the second half.

Failure to meet these reporting deadlines could result in sanctions, such as the suspension of transfers from the General Allocation Fund or Revenue Sharing Fund, as per the applicable regulations. This framework aims to guide regional borrowing and fiscal management effectively throughout the 2027 financial year.