Regional Debt, Fiscal Capacity, and Fiscal Space in the Maluku Islands Region
DOI:
https://doi.org/10.24256/kharaj.v8i3.12196Keywords:
Regional Debt; Fiscal Sustainability; Fiscal Space; Archipelagic Areas; Debt Service; Fiscal CapacityAbstract
This study analyzes the dynamics of regional debt and its implications for fiscal sustainability in the archipelago with a case study of Maluku Province. Although regional debt is increasingly playing a role as a development financing instrument, limited fiscal capacity and high dependence on central transfers pose a risk to medium-term fiscal sustainability. This study uses a descriptive-analytical quantitative approach based on APBD data and regional financial statements to examine the debt trajectory, fiscal structure, and fiscal space.
The results show that regional debt develops through a dynamic trajectory, from the accumulation phase to the active amortization phase, where debt payment obligations become a fixed fiscal burden. Although outstanding debt has decreased, debt service expenses remain significant, ranging from Rp126-137 billion per year, thus limiting regional fiscal flexibility. The debt service to revenue ratio increased from 4.35–4.49 percent in 2023–2024 to 9.15 percent in 2025. In addition, low fiscal independence (PAD < 25%), high dependence on central transfers (>75%), and increasing spending rigidity reinforce fiscal pressures.
Fiscal space analysis shows limited, even negative conditions in 2025. Debt additions simulations show that the debt service to income ratio can increase to about 35.8 percent, exceeding the high risk threshold (>20%). These findings confirm that a decline in debt stocks does not necessarily reflect reduced fiscal pressures, as the annual liability burden remains binding on the APBD.
This research contributes by introducing a debt trajectory approach in the context of the archipelago, as well as emphasizing the importance of alignment between debt policy and fiscal capacity in supporting sustainable development financing.
References
Akbar, R., Pilcher, R., & Perrin, B. (2015). Performance measurement in Indonesia: The case of local government. Pacific Accounting Review, 27(3), 262–283. https://doi.org/10.1108/PAR-01-2013-0003
Alesina, A., Favero, C., & Giavazzi, F. (2024). Austerity and public debt sustainability: Lessons from recent fiscal consolidations. Journal of Economic Perspectives, 38(1), 3–28. https://doi.org/10.1257/jep.38.1.3
Armstrong, H., & Read, R. (2004). The economic performance of small states and islands: The importance of geography. World Development, 32(8), 1353–1370.
https://doi.org/10.1016/j.worlddev.2004.04.009
Asian Development Bank. (2023). Infrastructure financing and subnational debt in emerging economies. Asian Development Bank.
Asian Development Bank. (2024). Financing resilient infrastructure in small island and archipelagic regions. Asian Development Bank.
Fiscal Policy Agency, Ministry of Finance of the Republic of Indonesia. (2024). National and regional fiscal sustainability studies. Ministry of Finance of the Republic of Indonesia.
Central Statistics Agency of Maluku Province. (Various years). Regional financial statistics of Maluku Province. Central Statistics Agency of Maluku Province.
Bird, R. M., & Smart, M. (2002). Intergovernmental fiscal transfers: International lessons for developing countries. World Development, 30(6), 899–912. https://doi.org/10.1016/S0305-750X(02)00016-5
Blanchard, O., Chouraqui, J.-C., Hagemann, R., & Sartor, N. (1990). The sustainability of fiscal policy: New answers to an old question. OECD Economic Studies, 15, 7–36.
Briguglio, L. (1995). Small island developing states and their economic vulnerabilities. World Development, 23(9), 1615–1632. https://doi.org/10.1016/0305-750X(95)00065-K
Directorate General of Financial Balance, Ministry of Finance of the Republic of Indonesia. (2023). Transfer policies to regions and village funds in maintaining regional fiscal stability. Ministry of Finance of the Republic of Indonesia.
Directorate General of Financial Balance, Ministry of Finance of the Republic of Indonesia. (2024). Roadmap for strengthening regional fiscal capacity. Ministry of Finance of the Republic of Indonesia.
Directorate General of Financial Balance, Ministry of Finance of the Republic of Indonesia. (Various years). Provincial and district/city APBD data. Ministry of Finance of the Republic of Indonesia.
International Monetary Fund. (2024). Subnational public finance and debt management: Recent trends and policy challenges. International Monetary Fund.
Ministry of Finance of the Republic of Indonesia. (2025). Fiscal policy framework and expenditure efficiency of local governments. Ministry of Finance of the Republic of Indonesia.
Lewis, B. D. (2003). Local government borrowing and repayment in Indonesia. World Development, 31(6), 1043–1060. https://doi.org/10.1016/S0305-750X(03)00047-7
Musgrave, R. A., & Musgrave, P. B. (1989). Public finance in theory and practice (5th ed.). McGraw-Hill.
Oates, W. E. (1972). Fiscal federalism. Harcourt Brace Jovanovich.
Organisation for Economic Co-operation and Development. (2023). Subnational government finance and investment: Key trends and challenges. OECD Publishing. https://doi.org/10.1787/7cbdc8f6-en
Organisation for Economic Co-operation and Development. (2024). Fiscal decentralization and public debt management. OECD Publishing.
Government of the Republic of Indonesia. (2023). Government Regulation of the Republic of Indonesia Number 38 of 2023 concerning Regional Loans.
PT Sarana Multi Infrastruktur (Persero). (2023). Annual report 2023. PT Sarana Multi Infrastruktur (Persero).
PT Sarana Multi Infrastruktur (Persero). (2024). Annual report 2024. PT Sarana Multi Infrastruktur (Persero).
Rodden, J. (2006). Hamilton's paradox: The promise and peril of fiscal federalism. Cambridge University Press. https://doi.org/10.1017/CBO9780511617624
Ter-Minassian, T., & Craig, J. (1997). Control of subnational government borrowing. In T. Ter-Minassian (Ed.), Fiscal federalism in theory and practice (pp. 156–172). International Monetary Fund.
Maluku Tribune. (2025, November 19). The Maluku Provincial Government applied for a loan of IDR 1.5 trillion to PT Sarana Multi Infrastruktur. Maluku Tribune.
United Nations Development Programme. (2023). Fiscal challenges in small island developing states. United Nations Development Programme.
Downloads
Published
How to Cite
Issue
Section
Citation Check
License
Copyright (c) 2026 Maryam Sangadji, Pandji Harsanto, Nugroho Prihantoro, Yusuf Wana Sanjaya, Anggita Rahma Tika, Farida Ariyani Hehanusa, Padli
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. In line with the license, authors are allowed to share and adapt the material. In addition, the material must be given appropriate credit, provided with a link to the license, and indicated if changes were made. If authors remix, transform or build upon the material, authors must distribute their contributions under the same license as the original.
