Optimising Specific Grant General Allocations to Improve Basic Education Services

Law No. 1 of 2022 concerning Fiscal Relations between the Central and Sub-national Governments (HKPD– Hubungan Keuangan antara Pemerintah Pusat dan Daerah) introduced a Specific Grant within the General Allocation Fund (DAU SG – Dana Alokasi Umum dengan Specific Grant) to accelerate the fulfilment of basic services through earmarked transfers. This policy brief analyses the impact of the DAU-SG for the 2023– 2025 period on achieving the 2025 Minimum Service Standards (MSS– Standar Pelayanan Minimal). The findings reveal a positive correlation between the increased DAU-SG allocation in 2024 and progress in the 2025 MSS, underscoring the effectiveness of performance-based fiscal interventions. Yet, several challenges remain, including first, disparities in education MSS between urban and rural areas, second, the uneven use of the DAU-SG utilisation across regions, and third, the underdeveloped monitoring and evaluation systems. To address these issues, this policy brief recommends strengthening planning and budgeting, developing technical guidelines at the regional level, and enhancing the institutional capacity of local governments. With stronger governance, the DAU-SG can serve as an effective and sustainable fiscal instrument that promotes equity in the quality of basic education services across Indonesia.