Subnational Loan Allocation and Fiscal Sustainability: An MCDA-Based Approach for Urban Infrastructure Financing in Indonesia

Citra Fadhilah Utami; Arum Ira Nadhira; Clarisa Rofiati; Della Affesia Putri

doi:10.59890/ijefbs.v4i1.327

Authors

Citra Fadhilah Utami Regional Infrastructure Development Agency, Ministry of Public Works
Arum Ira Nadhira Regional Infrastructure Development Agency, Ministry of Public Works
Clarisa Rofiati Regional Infrastructure Development Agency, Ministry of Public Works
Della Affesia Putri Regional Infrastructure Development Agency, Ministry of Public Works

DOI:

https://doi.org/10.59890/ijefbs.v4i1.327

Keywords:

Fiscal Sustainability, Subnational Borrowing, Infrastructure Financing, Multi-Criteria Decision Analysis (MCDA), Urban Economic Capacity

Abstract

Urban infrastructure financing in Indonesia faces a structural funding gap alongside rising subnational fiscal risk under decentralization. Therefore, this study aimed to develop a Multi-Criteria Decision Analysis framework to allocate loans across 50 priority cities in the 2025–2029 National Development Plan. The framework integrated fiscal capacity, debt sustainability, institutional readiness, public investment productivity, and spatial role into three composite indices, namely Soft Gate, Impact, and Priority. Using a weighted additive framework with percentile-based screening, cities were classified into Loan Priority, Blended, Grant, and Selective categories. The results showed that 28 percent qualified as Loan Priority, while 24 percent require blended mechanisms due to fiscal-impact mismatch. In conclusion, the framework enhances fiscal discipline and transparency in subnational borrowing decisions.

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