Prabowo Passes New Rules, Local Governments Can Now Apply For Loans To Central Governments

JAKARTA - President Prabowo Subianto officially ratified Government Regulation (PP) Number 38 of 2025 concerning Loans by the Central Government.

This regulation is a new legal basis for the government to channel loans to local governments (Pemda), BUMN, and BUMD in order to support national and regional development.

Director General of Economic Strategy and Fiscal Febrio Nathan Kacaribu explained that the PP provides a legal basis so that local governments can now apply for loans to the central government.

Before this rule was issued, local governments did not have the authority to obtain loans from the center.

"That's basically allowing it now. So far, you can't. There is no legal basis. Now it's okay," he told the media crew, quoted Wednesday, October 29.

Febrio added that the central government is currently calculating the amount of the loan limit that can be given to local governments and the loan value will later be adjusted to the needs of each region.

"So the problem with the amount (loan limit) will be shared later. In accordance with the request," he said.

Based on Article 4 of the PP, the central government aims to support various activities such as infrastructure development and provision, public services, strengthening the domestic industry, financing the productive sector, and other government strategic programs.

The government also opens opportunities for lending to regions or BUMDs affected by disasters, both nature and non-natural, in order to accelerate the process of social and economic recovery.

This PP confirms that every loan is channeled on behalf of the Central Government and managed by the Minister of Finance as the State General Treasurer, with the source of funds coming from the State Budget.

"The source of the loan granting funds by the central government comes from the state budget," reads Article 8 of the regulation.

Before the loan is given, the government must obtain DPR approval, as part of the process of discussing and ratifying the APBN and the Revised State Budget.

This loan granting policy was prepared for a five-year period and must be in line with the National Medium-Term Development Plan (RPJMN).

In the process of drafting it, the Minister of Finance will coordinate with a number of related ministers, including the Minister of Home Affairs, the Minister of SOEs, the Minister of National Development Planning/Bappenas, and the State Secretariat.

PP 38/2025 also stipulates a number of requirements for loan recipients.

For the Regional Government, the requirements include having a ratio of financial capacity (Debt Service Coverage Ratio/DSCR) of at least 2.5, not having arrears of loans, and obtaining DPRD approval.

Meanwhile, BUMN and BUMD must obtain approval from the minister or regional head as shareholders and do not have arrears from the previous loan.

"The provision of loans by the Central Government to Regional Governments, BUMN, and/or BUMD is expected to encourage national and regional development through relatively low funding," the government wrote in the regulation.