Their research, published in 2026 in the International Journal of Economic, Finance and Business Statistics (IJEFBS), introduces a Multi-Criteria Decision Analysis (MCDA) framework designed to guide government decisions on allocating infrastructure loans to subnational governments. The framework aims to improve fiscal discipline, transparency, and development impact in urban infrastructure financing.
The study is particularly relevant as Indonesia continues to experience rapid urbanization while public fiscal resources remain limited.
Indonesia’s Growing Infrastructure Financing Gap
Urban areas across Indonesia are experiencing rising demand for essential services, including drinking water systems, sanitation, transportation networks, and housing. However, the fiscal capacity of many local governments remains insufficient to meet these growing infrastructure needs.
Government fiscal planning documents indicate that the infrastructure financing gap in the 2024 budget reached approximately IDR 172.1 trillion between projected investment needs and available budget allocations.
To address this shortfall, the government increasingly relies on loan-based financing, including domestic borrowing and external loans from international development institutions. While loans can accelerate infrastructure development, they also carry fiscal risks.
If local governments borrow without adequate fiscal capacity, debt repayment problems may arise, potentially affecting national fiscal stability. Therefore, selecting cities eligible for infrastructure loans has become a crucial policy decision.
Assessing 50 National Priority Cities
The study examined 50 priority cities listed in Indonesia’s 2025–2029 National Medium-Term Development Plan (RPJMN). These cities play strategic roles in the national urban system and are considered potential recipients of infrastructure investment.
Data used in the analysis were drawn from official government sources, including:
- Fiscal reports from the Ministry of Finance
- Economic statistics from Statistics Indonesia (BPS)
- Audit reports from the Supreme Audit Board (BPK)
- Infrastructure service indicators from the Ministry of Public Works
Rather than relying on a single indicator, the research integrates multiple economic, institutional, and infrastructure variables into a comprehensive analytical model.
Key evaluation dimensions include:
- Regional fiscal capacity
- Debt sustainability
- Institutional readiness of local governments
- Productivity of public investment
- Strategic role of cities in the national urban system
This multidimensional approach allows policymakers to evaluate loan eligibility more comprehensively than traditional methods based solely on fiscal ratios.
Three Key Indices for Evaluation
The MCDA framework developed in the study generates three composite indices to evaluate cities.
Soft Gate Index
This index measures a city’s readiness to receive loans, focusing on fiscal strength, debt conditions, and institutional capacity.
Impact Score
The Impact Score evaluates the potential development impact of infrastructure investment, including infrastructure service gaps, economic growth potential, and urban mobility.
Priority Index
This index combines the previous two indicators to produce an overall loan eligibility ranking for each city.
Using percentile thresholds and weighted indicators, the framework classifies cities into four financing categories.
Four Infrastructure Financing Categories
The analysis reveals that Indonesian cities vary widely in both fiscal strength and development potential. Based on the MCDA framework, cities fall into four categories.
Loan Priority
Cities in this category demonstrate strong fiscal capacity and high development impact potential, making them suitable for conventional infrastructure loans.
Examples include:
- Metropolitan Medan
- Metropolitan Makassar
- Metropolitan Palembang
- Metropolitan Pekanbaru
- Kota Samarinda
- Kota Mataram
- Kota Bengkulu
Approximately 28 percent of cities fall into this category.
Blended Financing
These cities have high development potential but limited fiscal capacity. For these areas, infrastructure projects are better financed through a combination of loans and grants.
Examples include:
- Kota Cilegon
- Kota Bandar Lampung
- Kota Bukittinggi
- Kota Sorong
- Kabupaten Morowali
Around 24 percent of cities fall into this category.
Grant-Based Support
Cities with both limited fiscal capacity and lower measurable development impact are categorized under grant-based financing. For these areas, debt financing may pose higher fiscal risks.
Selective Activity
Cities with strong fiscal capacity but relatively smaller infrastructure gaps are placed in this category. Loans may still be used, but only for targeted, productivity-enhancing projects rather than large-scale infrastructure expansion.
Several major metropolitan areas, including Jakarta, Surabaya, and Bandung, fall into this category due to their relatively advanced infrastructure conditions.
Supporting Balanced Regional Development
One important finding of the study is that cities categorized as Loan Priority are geographically dispersed across Indonesia, including regions outside Java.
Priority cities appear across Sumatra, Kalimantan, Sulawesi, Bali, and other regions, indicating that the framework does not concentrate infrastructure financing solely in dominant metropolitan areas.
This spatial distribution suggests that the MCDA framework supports balanced regional development while maintaining fiscal prudence.
Reducing Fiscal Risks in Local Borrowing
According to the researchers, integrating fiscal indicators with development impact analysis helps policymakers reduce fiscal risks in subnational borrowing.
Citra Fadhilah Utami explains that loan allocation decisions should not be based solely on infrastructure demand. Instead, they must consider whether local governments possess sufficient fiscal strength and institutional capacity to manage debt responsibly.
By linking loan eligibility to measurable fiscal and governance indicators, the framework can also encourage local governments to improve financial management and institutional performance.
Relevance for Developing Countries
The framework developed in this study may also benefit other developing countries facing similar challenges: rapid urban growth, increasing infrastructure demand, and limited fiscal resources.
The MCDA-based approach provides a transparent and adaptable method for governments to allocate infrastructure financing while maintaining fiscal sustainability.
As urbanization continues across emerging economies, structured decision-support tools such as this framework may play a critical role in ensuring sustainable infrastructure development.
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