Budget Politics of Indonesia's WASH Sector: Current Realities and Future Prospects
The CRPG-IBP MSF 3 multi-stakeholder forum convened in December 2025 against a backdrop of fiscal uncertainty that threatens Indonesia's water, sanitation, and hygiene (WASH) sector. The meeting's full title captured the urgency: "Financing Strategies for Water, Sanitation, and Hygiene in Coastal and Urban Areas Post Budget Efficiency Policy." Representatives from national planning agencies, multiple ministries, the supreme audit institution, regional governments from Makassar, Lombok, and Semarang, and civil society organizations gathered to confront a sobering question: what happens to essential public health infrastructure when budgets face systematic cuts?
The efficiency policy referenced in the forum's title had already begun reshaping the fiscal landscape. Revenue sharing funds (DBH) and physical special allocation funds (DAK Fisik) were experiencing what participants described as "drastic reductions" for the 2026 fiscal year. Regional governments, many of which had come to rely heavily on these transfer mechanisms, found themselves scrambling to revise plans already in execution. The forum provided a venue for stakeholders across the governance spectrum to assess the damage and explore responses.
Indonesia allocates a remarkably small share of its national budget to water and sanitation infrastructure. According to analysis presented at the forum, water supply receives approximately 0.33 percent of total national expenditure, while sanitation claims just 0.22 percent. These figures have remained stubbornly static despite growing recognition that current investment levels cannot achieve stated access targets. The national medium-term development plan establishes ambitious goals—30 percent safe sanitation access and 43 percent safe water access by 2029—yet the fiscal resources directed toward these goals remain woefully inadequate.
Across the five-year period from 2021 to 2025, total national budget funding for WASH reached approximately Rp191.3 trillion when aggregated across all implementing agencies. This represents between 1.12 and 1.27 percent of annual national spending—a proportion that fluctuates within this narrow band year after year. The structure of this funding is dominated by capital expenditure and physical infrastructure allocation funds, confirming that WASH financing remains heavily biased toward infrastructure construction rather than the institutional capacity building needed for sustainable service delivery.
The fundamental mismatch between resources and requirements was repeatedly emphasized by forum participants. National budget allocations cover only 40 to 60 percent of total investment needs for achieving WASH targets. One government stakeholder presenting on sanitation policy was candid about the limitations: the national budget share represents approximately 40 percent of requirements at most, and even this figure functions as a ceiling rather than a guaranteed allocation. The actual execution rate falls well below this upper bound—one official acknowledged that implementation would not reach even 25 percent of the notional target.
For the water supply subsector specifically, the numbers are equally stark. Total investment needs through 2029 are estimated at approximately Rp147 trillion to achieve the 43 percent safe water access target. The maximum national budget envelope amounts to roughly Rp67 trillion. However, based on historical patterns showing annual disbursements of Rp4 to 5 trillion, realistic five-year contributions will reach only about Rp25 trillion—less than 20 percent of total requirements. The gap between needs and realistic supply is not marginal but fundamental.
The efficiency policy has compounded these structural limitations through direct cuts to transfer mechanisms. Special allocation funds for physical infrastructure in water and sanitation had grown from Rp17.2 trillion in 2021 to Rp22.6 trillion in 2024, representing increasing—if still inadequate—attention to the sector. However, this growth trajectory has now reversed. Forum participants reported that some regions face cuts to these allocation funds exceeding 25 percent, forcing rapid replanning of infrastructure projects already in the pipeline.
The adjustments targeted for 2026 have created uncertainty that extends throughout the planning horizon. One government stakeholder acknowledged that certainty regarding available allocations remains "quite dynamic"—bureaucratic language acknowledging that planning assumptions may not survive contact with fiscal reality. For regional governments attempting to plan multi-year infrastructure investments, this unpredictability undermines the rational sequencing of construction projects and increases the risk of stranded investments.
Meanwhile, non-physical allocation funds intended for institutional capacity building have stagnated at approximately Rp1 to 1.5 trillion annually. This imbalance between physical infrastructure funding and institutional support creates a predictable pattern: facilities get built but lack the operational capacity and maintenance resources to function effectively. The emphasis on capital spending at the expense of recurrent support contributes to the widespread problem of underutilized infrastructure that plagues the sector. Multiple participants noted that existing treatment facilities operate well below design capacity due to inadequate operations and maintenance.
Regional governments have become heavily dependent on central transfer funds to finance WASH infrastructure. This dependency has grown over time as regions came to rely on these funds for an increasing share of infrastructure investment. Now, with transfers facing cuts, the dependency that had developed reveals itself as a vulnerability. Regions with stronger own-source revenues can better absorb transfer reductions, while those more dependent on central support face disproportionate impacts. This dynamic undermines the coordinated national effort needed to achieve universal access goals, as progress becomes increasingly uneven across the archipelago.
Perhaps the most striking finding from the forum concerned regional budget allocations for sanitation. Average allocations hover below 0.5 percent of total regional expenditure—in some cases as low as 0.11 percent. These minimal commitments persist despite sanitation being classified as a minimum service standard (Standar Pelayanan Minimal) obligation that regional governments are legally required to fulfill. One stakeholder summarized the situation bluntly: funding attention from regional budgets for the sector essentially does not exist.
Even more concerning, regional budget expenditure for sanitation shows declining trends from 2021 to 2023—precisely when increased investment would be needed to compensate for national budget constraints. This downward trajectory suggests not merely stagnation but active retreat from sector financing at the regional level. The sanitation directorate representative acknowledged this reality: the share of funding that should come from regional budgets is simply not materializing, leaving a gap that neither central transfers nor alternative financing can fill.
The structural expectation underlying Indonesia's WASH financing model assumes that regional governments will fill the gap left by limited national allocations. Water and sanitation services are classified as concurrent affairs (urusan konkuren) under Indonesian law—responsibilities shared between central and regional governments. Central government contributions are explicitly designed to provide only partial funding, with the remainder expected from regional sources either directly through regional budgets or through matching requirements attached to transfer funds.
Yet the evidence suggests this expectation is fundamentally unrealistic given current political incentives and institutional constraints. The forum heard repeatedly that regional governments lack both the fiscal capacity and political will to prioritize sanitation and wastewater investment. Without compelling incentives or effective mandates, local leaders allocate scarce resources to more politically visible priorities.
Tariff structures for water and sanitation services illustrate how political calculations override technical requirements. The authority to set tariffs rests with regional government heads (Bupati/Walikota), making pricing decisions inherently political. Multiple participants identified tariffs as instruments of political positioning rather than tools for service sustainability. One stakeholder noted explicitly that tariffs become "political tools for regional heads"—used to build electoral support rather than ensure cost recovery for utilities.
This dynamic creates a vicious cycle. Utilities that cannot charge cost-recovering tariffs cannot fund adequate operations and maintenance, let alone contribute to capital investments. Their poor service quality then makes tariff increases even more politically difficult to justify. Breaking this cycle requires political leadership willing to absorb short-term costs for long-term gains—leadership that the current incentive structure does not reward. Particularly as elections approach, the political costs of raising tariffs typically outweigh the service delivery benefits.
A phenomenon that received substantial attention at the forum involves regional officials' reluctance to execute available budgets due to fear of scrutiny from law enforcement agencies (Aparat Penegak Hukum or APH). Concerns about potential investigations for alleged misuse of funds lead to conservative spending behavior. Officials prefer to leave allocated money unspent rather than risk personal legal exposure. This paradox—underspending driven by excessive caution rather than incapacity—contributes to poor budget absorption while remaining largely invisible in conventional monitoring systems.
The forum synthesis document specifically identified this issue: regional governments frequently hesitate to execute budgets due to fear of law enforcement and pressure from irresponsible advocacy organizations, resulting in low budget absorption rates. This phenomenon helps explain why even when funds are nominally available, they may not translate into actual infrastructure or service improvements.
Electoral cycles introduce additional disruption to budget execution. As elections approach, priorities shift toward more visible expenditures that can be attributed to incumbent leadership. Budget refocusing and priority shifts around electoral periods were specifically identified as factors causing fiscal instability and declining long-term policy commitments. The analysis documented significant infrastructure project postponements during the 2021-2023 period, attributed partly to pandemic-related budget refocusing but also to electoral considerations.
One researcher's presentation articulated this dynamic clearly: electoral period priority shifts cause "relocation to electoral sectors," with fiscal stability disturbed and long-term policy commitments declining. This pattern undermines the multi-year planning essential for complex infrastructure projects while disadvantaging sectors like sanitation that offer limited electoral returns.
Sanitation suffers particularly from low political visibility. Unlike roads, bridges, or even water supply, sanitation improvements rarely feature in electoral campaigns. The forum synthesis noted explicitly that sanitation and wastewater issues frequently do not become political priorities for regional heads, resulting in minimal or zero regional budget allocations for the sector. Without political champions at the regional level, sanitation allocations remain minimal regardless of legal obligations or national targets.
The distribution of WASH responsibilities across multiple national agencies compounds these challenges. According to the analysis presented, one agency dominates with approximately 70 percent of sector budget allocation for WASH activities, while others handle approximately 20 percent and 8 percent respectively. This fragmented structure operates without joint accountability for outcomes. No mechanism exists to ensure that the combined efforts of different agencies add up to progress toward national targets.
At the regional level, this fragmentation manifests as confusion about which local department—public works, housing and settlement, or environment—holds responsibility for specific WASH components. The forum synthesis noted that this causes confusion at the regional level regarding authority, for example between public works, housing, and environment departments regarding responsibility for drainage or solid waste. When accountability is unclear, responsibility-shifting becomes the default response to challenges.
The supreme audit institution was cited as having identified a critical regulatory gap: the absence of a formal National Water and Sanitation Roadmap as a regulatory derivative, despite five years having passed since a previous performance audit. Existing planning documents remain technocratic rather than legally binding, limiting their authority to compel coordinated action. Many regions struggle to develop implementing regulations because national-level rules remain disharmonized or overlapping.
Solid waste management faces parallel constraints. National budget covers only 32 percent of the required investment envelope, with the remainder expected from regional sources that themselves show declining commitment. Policy has shifted toward prohibiting new landfill construction (the "No New TPA" policy) in favor of integrated waste processing facilities and source reduction. Yet the financing to build these alternative facilities remains inadequate, creating a situation where old approaches are prohibited but new approaches remain unfunded.
For solid waste, the targets are clear: 85 percent household collection coverage by 2029, with only 47 percent of waste reaching landfills as residue and 38 percent processed at treatment facilities. Achieving these targets requires massive expansion of community-level waste processing facilities (TPS 3R and TPST). One official noted that targets for these facilities might increase from 296 to nearly 1,000 units, yet financing mechanisms to support this expansion remain uncertain.
Coastal and small island areas face even more severe constraints. With over 17,000 islands including 1,200 inhabited small islands, Indonesia's archipelagic geography creates unique challenges. The cost of providing safe water in small islands can be 3 to 10 times higher than on larger landmasses due to shallow aquifers, limited freshwater volumes, and vulnerability to saltwater intrusion. Yet allocation mechanisms do not reflect these cost differentials. One stakeholder from the marine affairs ministry noted that special allocation funds are "not yet risk-based"—they do not account for the higher costs and greater challenges of service provision in coastal and island areas.
Non-APBN financing sources provide some relief but face their own limitations. Total non-APBN contributions over the study period reached approximately Rp43.17 trillion from diverse sources: foreign loans (Rp18.5 trillion, or 42 percent), international grants (Rp7.7 trillion), public-private partnerships (approximately Rp3 trillion), and corporate social responsibility combined with philanthropy (nearly Rp14 trillion). A state infrastructure financing vehicle was identified as playing an unexpectedly significant role.
However, these alternative sources are inconsistent, project-based, and concentrated in areas attractive to external funders—which often differ from areas of greatest need. Loan-financed projects through multilateral development banks demonstrate higher execution rates due to milestone requirements and external oversight, but this dependence on external accountability mechanisms highlights weaknesses in domestic governance. As one researcher noted, budget credibility is actually higher for projects supervised by multilateral lenders compared to purely domestic financing.
Public-private partnerships remain difficult to execute when utilities are small and fragmented. One participant was blunt about the challenge: when operations remain small-scale, advertising partnership opportunities rarely generates investor interest. The transformation agenda being discussed—including utility mergers and the creation of holding company structures—might eventually create entities large enough to attract private investment, but this restructuring process will take years to complete.
Several reform proposals emerged from the forum discussions. Planning authorities are developing medium-term special allocation fund concepts (3 to 5 years) to provide greater certainty for regional planning and enable completion of multi-year infrastructure projects. This approach, similar to integrated DAK concepts piloted previously, would protect allocations from annual volatility and allow more rational project sequencing.
One ministry has established a transformation taskforce (Satgas Tri Banyu Arutala) pursuing three major initiatives: establishing a national water regulatory body, restructuring water utilities through mergers into regional or national holding companies, and potentially recentralizing service provision in urban areas where regional governments have failed to deliver. These proposals acknowledge that decentralization has not produced the intended improvements in service delivery, with one stakeholder noting that the central government may need to directly assume service responsibilities where regional capacity has proven inadequate.
A new Water and Sanitation Law has entered the national legislative program (Prolegnas), with both parliamentary and executive branch versions under development. Forum participants emphasized the importance of ensuring this legislation prioritizes public interest and protects vulnerable populations rather than enabling excessive commercialization. Civil society representatives committed to monitoring the legislative process to guard against policy capture by interests that might benefit from continued poor service conditions.
Under business-as-usual conditions, the trajectory is clear. If special allocation fund cuts continue, regions cannot build the infrastructure needed to expand coverage. If regional budget allocations remain minimal, there is no local ownership or fiscal commitment to service delivery. If political cycles continue disrupting long-term planning, sustained progress becomes impossible. The targets established in the national development plan—30 percent safe sanitation access and 43 percent safe water access by 2029—will not be achieved.
The gap between investment needs and available resources is not static but widening. Infrastructure backlogs accumulate as existing systems deteriorate and population growth adds new demand. Each year of underinvestment increases the eventual cost of achieving universal access while pushing target dates further into the future. This compounding effect means that delayed action becomes progressively more expensive.
The decentralization paradox lies at the heart of these challenges. Concurrent responsibility means shared responsibility—which in practice often means diffused accountability. Central government pushes implementation responsibility to regions while providing inadequate fiscal support. Regional governments lack both the capacity and political will to fill the gap. The result is that nobody is truly accountable for outcomes, and services remain inadequate despite decades of development investment.
Government stakeholders at the forum acknowledged these realities with unusual candor. The funding gap exists not only at the regional level but at the center as well. Infrastructure that has been built often operates well below capacity due to inadequate maintenance and operations. Regulatory frameworks remain incomplete, with regions struggling to develop implementing rules while national regulations remain disharmonized.
Civil society participants emphasized that improvements require stronger public advocacy. When citizens do not demand better services, political leaders face no pressure to prioritize the sector. The forum concluded that public voice needs to be louder in demanding service improvements. Yet mobilizing advocacy for sanitation—a topic most people prefer not to discuss—presents inherent difficulties that differentiate it from more visible public services.
The forum also highlighted the exclusion of vulnerable populations from planning processes. Women with disabilities were specifically identified as a group frequently left out of coordination and planning, resulting in facilities that do not meet their specific needs. Inclusive approaches that treat communities as subjects of development rather than passive recipients remain the exception rather than the norm.
The budget politics of Indonesia's WASH sector ultimately reflects a governance system struggling to align fiscal resources with service delivery mandates. The problem is not merely insufficient money, though money is certainly insufficient. The deeper issue involves political economy dynamics that systematically disadvantage long-term, technically complex, politically invisible infrastructure in favor of short-term, visible, electorally rewarding expenditures.
Without fundamental changes to these dynamics—stronger central accountability, realistic regional fiscal capacity, reformed political incentives around tariffs and budgets, and protection from electoral cycle disruption—business as usual will produce continued shortfalls. The targets established in national plans will remain aspirational rather than achievable. And millions of Indonesians will continue lacking access to the safe water and sanitation services that the government has committed to provide.
The forum concluded with recognition that procedural reforms alone cannot overcome deeply embedded political economy constraints. Improving WASH outcomes requires not just better planning tools or adjusted allocation formulas, but political commitment at the highest levels to protect essential service funding from the pressures that have historically undermined it. Whether such commitment will materialize remains the fundamental uncertainty facing the sector as it enters the 2025-2029 development period.
Disclaimer
This article was AI-generated under an experimental legal-AI application. It may contain errors, inaccuracies, or hallucinations. The content is provided for informational purposes only and should not be relied upon as legal advice or authoritative interpretation of regulations.
We accept no liability whatsoever for any decisions made based on this article. Readers are strongly advised to:
- Consult the official regulation text from government sources
- Seek professional legal counsel for specific matters
- Verify all information independently
This experimental AI application is designed to improve access to regulatory information, but accuracy cannot be guaranteed.