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Alternative sources of funding for relocation of nation’s capital
The relocation of the nation’s capital to East Kalimantan will require a huge sum, some Rp 466.5 trillion (US$31.31 billion). Funds from the state budget are estimated at only Rp. 91.3 trillion, or 19.6 percent of total financing needs.
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Brand new city?: An image of one possible plan for the new capital city Nusantara in East Kalimantan.
(Courtesy of/Public Works and Public Housing Ministry)
Mamay Sukaesih (Bank Mandiri)
Jakarta
The relocation of the nation’s capital to East Kalimantan will require a huge sum, some Rp 466.5 trillion (US$31.31 billion). Funds from the state budget are estimated at only Rp. 91.3 trillion, or 19.6 percent of total financing needs.
Sources of funding from the state budget were relatively limited to keep the fiscal deficit manageable. Thus, funds from public-private partnerships (PPPs) and the private sector have an important role in building the new capital Nusantara.
Nevertheless, we see that funds from the private sector are also relatively limited until 2024. We think that investors are going to wait to invest due to the general election in 2024. Similarly, foreign funds from other countries will also be relatively restrained in line with global economic uncertainty and a potential global economic recession. Therefore, government support, fiscal incentives and financing breakthroughs will play an important role in attracting investors to the new capital project.
In April 2022, the government issued Government Regulation (PP) No.17/2022 on funding sources for the new capital city. The regulation deals with funding and budget management in the context of the preparation, development and relocation of the nation’s capital as well as its local administration. There are six funding schemes under the regulation.
The first is the state budget. These funds can be allocated for basic infrastructure development, such as the new presidential palace, ministry offices, the water supply, roads and sewage and drainage systems in the core government area.
