Finance Minister Purbaya Yudhi Sadewa told lawmakers on Monday that the central government will begin taking over pay for a large group of teachers and health workers now paid by local administrations. The plan is to convert part-time, locally contracted staff into full-time civil servants and have their salaries covered by the center across a three-year period beginning in 2027. The idea is to ease the stress on regional budgets that are already feeling tight.
Dozens of regional governments have reported trouble paying contract workers after the center redirected funds toward President Prabowo Subianto's priorities such as free meals. Transfers to the regions came in at 697 trillion rupiah this year, amounting to 18% of total spending, compared with 849 trillion rupiah in 2025, when they made up nearly a quarter of the budget. Next year's transfers are set at 735 trillion rupiah, keeping roughly the same share as this year.
Some areas raised local taxes in response, sparking protests last year, while others had difficulty covering payroll, which has fueled worries about possible pressure on public services. Jakarta has weighed additional transfers and other fiscal support to help.
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The National Civil Service Agency counts about 2.5 million contract-based workers on local rolls, with many serving in schools and health facilities. The government pegs the salary shift at about 31.1 trillion rupiah, or $1.8 billion. Purbaya said the ultimate cost could be higher and did not specify whether that estimate is for the full three-year effort or a single year.
Purbaya outlined a move to use PT Sarana Multi Infrastruktur to provide loans to regional administrations, while the finance ministry would delay some revenue-sharing (DBH) disbursements in the coming years. Those delays are aimed at maintaining fiscal stability but have tightened regional budgets and development spending. Under this arrangement, local governments could take out loans from SMI, and the central government would handle the debt service, designed to keep regional development moving while safeguarding the national balance sheet.
SMI would maintain tight oversight of the projects to ensure they are carried out as intended. For your wallet, this shifts more payroll and project risk to the center, and signals where support could flow if local finances stay under pressure.
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