Reform On Village Funds Formulation

The Law No. 6 of 2014 about the Village brought fundamental changes in the management, arrangement and implementation of village governance. In village finances, the law governs the source of village income which can implicates the budget allocation for the village, both sourced from the central budget as well as the regional budget. Since the year 2015, the allocation of village funds increased quite significantly, both nominal rupiah and proportion to the total funds transfer to the area. Over the last 5 years, the village fund increased almost 3.5 times to Rp 70 trillion in 2019, with a total allocation of Rp 257.2 trillion for five years.

The National Team of Accelerating Poverty Reduction (TNP2K) has supported the Directorate General of Financial Balance (DJPK) of the Ministry of Finance to make adjustments to the allocation of the formula to be more equitable and equitable by considering Increase the nominal value of village funds in the national budget in the future. In the year 2015-2017, the proportion of basic allocation was 90% of the total village funds budgeted. After the adjustment process with various considerations and inputs, the basic allocation is gradually decreased to 77% and 72% respectively in the fiscal year 2018 and 2019. Some of the recommendations that need to be follow up include: i) to refine the allocation distribution of fairness by increasing the proportion of formula-based allocation; ii) to encourage accountability of priority utilization of village funds with priority-based planning; III) update index of geographical difficulties and transparency of calculations; and IV) to consider building institutional fund management of villages.