The Analysis of Sub-National Fiscal Risk in Indonesia

Abstract

A Fiscal Risk Management will increase fiscal sustainability in the nation development. The International Monetary Fund revealed that one source of fiscal risk for the government is Sub-national Risk or a fiscal pressure which came from the local governments. Until 2021, the Government of Indonesia has not assessed the Sub-national fiscal risk as a source of fiscal risk in the preparation of the State Revenue and Expenditure Budget (APBN). This study aims to propose a sub-national fiscal risk assessment model and carried out an assessment of the risk level in the provincial governments, and analyzed it for the year 2023. The data used was The Budget Realization Report and Balance Sheet of the Provincial Government for the year 2015 - 2020. The method used is literature study, quantitative descriptive analysis, and forecasting time series analysis. The results of this study are the definition of subnational fiscal risk, a measurement formula, and a map of Indonesia's subnational fiscal risk. The Local Government which lowest fiscal risk in the year 2023 is DKI Jakarta and the highest fiscal risk is DI Aceh. A deeper analysis shows the results that regions with the Trade development sector have better fiscal management and lower levels of fiscal risk. This study provides new insights for the Government of Indonesia in develop a strategy to improve a fiscal capacity of local government and the formulation of policies regarding the financial balance between central government and local government.