Budget Allocation Model Planning for Basic Infrastructure Development to Reduce Poverty: A Case of Local Government in Palembang City, Indonesia

Fundamental social infrastructure, including roads, water, energy, and sanitation, plays a crucial role in supporting economic cycles, ensuring access to essential services, and enhancing resilience among middle- to low-income communities. Several cases in Indonesia suggest that fiscal fragmentation can reduce poverty when accompanied by improved local fiscal capacity and higher spending quality [1]. Nevertheless, such a fragmented system also presents challenges, including intergovernmental inconsistencies and capacity gaps [2]. These drawbacks highlight the importance of carefully modeling budget allocation at the local level.

In the specific case of East Nusa Tenggara, Indonesia, fiscal fragmentation, together with human development and infrastructure completeness, collectively influences poverty levels [3]. Uncertain progress in infrastructure development is often associated with irregular fiscal autonomy and variations in governance performance across districts [4]. These differences emphasize the need for allocation models that are tailored to the contextual fiscal and governance realities of cities such as Palembang.

Analyses of Indonesia’s fiscal fragmentation indicate that improved fragmentation can enhance governance performance, particularly in districts outside Java Island, with positive implications for service delivery and poverty reduction [4]. However, village-level funding (village funds) produces inconsistent poverty outcomes that depend on administrative capacity and accountability mechanisms [5, 6]. These findings suggest that the allocation model should incorporate governance safeguards and adopt differentiated strategies to address the distinct infrastructure needs of urban and rural areas.

Urban studies emphasize that access to infrastructure is often lower in underprivileged communities, reflecting spatial inequality and discrimination [7]. In Indonesia’s urbanizing context, poor infrastructure in peri-urban and rural areas pushes migration and intensifies poverty [8]; without proper infrastructure, the poorest are systematically abandoned. For cities like Palembang, spatial targeting should therefore be indivisible from infrastructure budget planning.

This study proposes a budget allocation model specifically designed for Palembang City, South Sumatra, Indonesia, that integrates poverty reduction metrics, local fiscal capacity, infrastructure accessibility, and governance indicators. It draws on several strands of recent empirical research, including the poverty impacts of fiscal fragmentation [1], regional infrastructure–poverty dynamics [3], governance performance relationships [4], village fund effectiveness [5, 6], and spatial infrastructure disparities [7, 8]. The model is implemented using community-level data from Palembang to assess its potential for promoting pro-poor infrastructure investment with spatial equity and strengthened accountability. The study ultimately aims to provide actionable guidance for local policymakers operating within the constraints of fragmented governance systems.

3.1 Condition and habitability of respondents

Most respondents (poor households) live in modest dwellings constructed from wood, bamboo, or concrete, which are generally cramped, fragile, and unfit for habitation. The majority of these houses range in size from 16 to 24 m², with some as small as 6 m², and lack partitions or separate bedrooms, causing the family room to function simultaneously as a living and sleeping area. Several houses are in severely deteriorated condition, characterized by unplastered walls, leaky roofs, decayed wooden floors, and weak bamboo supports that pose a risk of structural collapse.

Sanitation facilities remain one of the major challenges faced by poor households [19]. Most respondents’ houses are not equipped with permanent toilets, resulting in open defecation and the direct disposal of household waste into rivers. In several research locations, public bathing, washing, and toilet facilities are also unavailable, forcing residents to rely on the river to meet their daily sanitation needs. It is estimated that approximately 70% of residents in the area use the Musi River for bathing, washing, and defecating. The lack of basic sanitation infrastructure reflects not only the poor housing conditions but also the low standard of living experienced by impoverished communities in the study area [20].

Clean water is a fundamental form of basic infrastructure that plays a crucial role in fulfilling the daily needs of the community [21-23]. However, most poor households in the study area still lack access to clean water provided by the PDAM. Consequently, they rely entirely on the Musi River as their primary source of water for daily activities such as washing, bathing, and other household uses. Some residents also depend on their neighbors’ water connections for bathing and washing, while drinking water is obtained through the purchase of refillable gallon bottles. This condition underscores the community’s limited access to adequate clean water infrastructure, leaving them with no alternative but to wait for the installation of PDAM pipeline networks in their residential areas.

The absence of public street lighting increases the potential risk of social conflict and criminal activity in residential areas [24]. One respondent reported the lack of both night patrols and street lighting around his home, and he had even heard of incidents of robbery and theft occurring in the neighborhood. This condition underscores the importance of providing adequate public street lighting and strengthening community-based security systems to enhance residents’ sense of safety. In addition, damaged footpaths frequently cause accidents and harm to residents’ merchandise, particularly among those whose livelihoods depend on daily economic activities

3.2 Analysis of criteria and priority determination for basic infrastructure budget allocation

Effectively allocating basic infrastructure budgets to reduce poverty is a complex and multidimensional challenge; therefore, budgetary decisions cannot rely solely on intuition. Policy formulation requires a transparent and auditable analytical framework capable of comprehensively balancing multiple public objectives. In this context, the Analytic Hierarchy Process (AHP) represents a highly relevant approach [15-17]. This method not only generates quantitative weights for each criterion but also provides a rational and accountable basis for policy decisions, particularly in establishing priorities among various alternatives. The results of the AHP-based weighting of criteria and alternatives used in the decision-making process are presented in Tables 2-3.

Table 2. Scores of criteria are necessary

Table 3. Scores of alternatives for each criterion

Substantively, the weighting composition reinforces an orientation toward outcome-based budgeting, in which the primary emphasis is placed on achieving tangible impacts in poverty reduction. At the same time, the dimensions of fiscal efficiency (cost), legitimacy and collaboration (support), feasibility (readiness), and coverage (number of beneficiaries) function as balancing factors to prevent bias in budget allocation decisions. The prioritization of impact as the central anchor indicates that interventions addressing the most fundamental forms of deprivation, such as the provision of adequate housing and access to sanitation, tend to receive the highest priority in the overall ranking.

Based on the results of the AHP modeling, decision-making regarding the allocation of basic infrastructure budgets in Palembang City is primarily oriented toward social effectiveness. This orientation is evident from the weighting of criteria, which places IPR (0.424) as the most influential factor, followed by CMC (0.171), Community and Regional Apparatus Organization (OPD) Support (0.167), LPR (0.121), and NPA (0.117). The consistency ratio (CR) values at both the criteria and alternative matrix levels are below the acceptable threshold of 0.10, indicating an adequate level of logical consistency. These results confirm that the model provides a sound and transparent analytical basis for auditable decision-making.

The near-identical weights of NPA at 0.171 and CMC at 0.167 indicate that, within the framework of AHP-based decision-making, both criteria are considered to have a relatively balanced level of importance in supporting poverty reduction objectives. This finding reflects a policy approach that not only emphasises the breadth of beneficiary coverage as a manifestation of the principles of equity and inclusiveness, but also considers cost efficiency as a prerequisite for fiscal sustainability and programme implementation quality. This equal weighting indicates a conscious policy trade-off between the scale of social impact and financing capacity.

The placement of IPR as the most influential criterion in the AHP results (0.424) reflects the priority of public policy effectiveness in the context of basic infrastructure development, emphasizing that budget allocations should be directed towards interventions that are most capable of directly changing the living conditions of poor households. Basic infrastructure such as drinking water services, sanitation, electricity, transportation, and educational facilities has been empirically proven to correlate with a decrease in poverty levels because they improve access to economic opportunities, social services, and increase the productivity of underprivileged households, thereby generating greater welfare impacts than simply the number of people affected or other administrative variables. Empirical studies in various regions of Indonesia have shown that improvements in sanitation, electricity, and road infrastructure have a significant negative impact on poverty rates, indicating that better infrastructure is associated with lower poverty rates [25, 26].

The analysis results show that the habitable houses programme ranks first with the highest weight of 0.280, indicating that this alternative is considered the most optimal in meeting all the criteria used in the study. The relatively high and consistent habitable house score across almost all criteria, particularly in terms of IPR, NPA, and LPR, shows that the housing programme has the strongest capacity to produce direct and tangible impacts on poor households, supported by a good level of implementation readiness. This finding reinforces the view that decent housing not only serves to fulfil basic needs, but also acts as a multidimensional intervention capable of improving the health, security, economic stability, and psychosocial well-being of poor households, thereby contributing substantially to poverty reduction.

Environmental sanitation alternatives ranked second with a weight of 0.208, indicating their role as a strategic intervention with broad benefits at the community level. The relatively high Environmental Sanitation score on the NPA and COS criteria indicates that this programme tends to gain strong social acceptance and can reach larger community groups. Although its impact on poverty reduction is more indirect than housing, environmental sanitation contributes significantly to reducing the risk of environment-based diseases, improving quality of life, and creating conditions that support community economic productivity, thus remaining relevant as a supporting policy priority.

Furthermore, drainage ranks third with a weight of 0.181, reflecting its role as protective infrastructure against environmental risks, particularly flooding and waterlogging. The drainage score, which is fairly balanced in terms of cost and readiness criteria, indicates that this programme is relatively feasible to implement, but its impact on poverty reduction is more preventive than transformative. In other words, drainage serves to prevent the socio-economic conditions of the community from deteriorating due to environmental shocks, but its contribution to improving the welfare of poor households is not as strong as housing and sanitation interventions.

Neighbourhood road development ranked fourth with a weighting of 0.172, indicating that although accessibility is an important factor in supporting economic activity and community mobility, its impact on poverty reduction is considered to be more indirect. The relatively even scores for neighbourhood roads across various criteria indicate that this programme functions as enabling infrastructure that strengthens the effectiveness of other programmes, such as housing and sanitation, but is less effective on its own as a primary instrument for poverty alleviation.

Meanwhile, Clean Water ranked last with a weight of 0.159, although this programme showed relative superiority in terms of the CMC criterion, indicating cost efficiency. The low total weight of clean water does not mean that this programme is unimportant, but rather reflects that in the context of this study, its benefits are more complementary and are often covered by other programmes, particularly housing and sanitation. Therefore, its contribution to poverty reduction is considered more optimal when integrated with more comprehensive interventions.

The policy implications are evident: to achieve rapid social effectiveness, the habitable house and environmental sanitation programs should be prioritized, as both directly address the most fundamental forms of deprivation, housing quality and environmental health, and possess strong social legitimacy at the community level. Meanwhile, the Clean Water and Drainage programs demonstrate advantages in terms of fiscal efficiency and technical readiness across multiple locations, making them suitable instruments for acceleration to sustain implementation momentum and regional fiscal stability. The Neighborhood Roads program, on the other hand, is context-dependent, delivering significant benefits when aligned with basic service corridors and centers of economic activity. Therefore, project prioritization in this sector should be guided by spatial evidence, including proximity to schools, health centers, and markets, as well as a location-specific benefit analysis.

3.3 Budget allocation model for basic infrastructure development

The budget allocation model was developed based on the results of decision-making criteria using the AHP [27]. The weight of each decision-making criterion serves as the basis for determining infrastructure development priorities and sequencing their implementation. The resulting priority weights were as follows: IPR (42.4%), CMC (17.1%), COS (16.7%), LPR (12.1%), and number of people affected (11.7%) (Figure 3). These criteria weights collectively reflect a balance of social effectiveness, economic efficiency, and institutional readiness in determining the priorities for basic infrastructure development.

Furthermore, a priority order was established for the types of basic infrastructure that significantly contribute to poverty reduction in Palembang City, namely habitable house, environmental sanitation, drainage, neighborhood roads, and clean water. The priority sequence indicates that meeting fundamental needs, such as adequate housing and proper sanitation, serves as the primary foundation for improving the quality of life among low-income households before developing other supporting infrastructure. Moreover, the allocation mechanism was designed by structuring the implementation of infrastructure programs in sequential stages to ensure that development efforts are more focused, efficient, and sustainable [28]. The model consists of three main stages:

First stage: Habitable house and environmental sanitation

Addressing the basic needs for healthy housing and a hygienic environment as prerequisites for the welfare and health of the poor.

Second stage: Drainage and clean water

Improving physical environmental conditions through flood control (SUDS) and clean water provision, thereby supporting sustainable and healthy living. Sustainable Urban Drainage Systems (SUDS) prioritise infiltration and mimic natural hydrological processes to reduce flood risk, improve water quality, and support ecosystems in urban environments. Effective SUDS designs integrate various components, such as permeable pavements, green roofs, and rain gardens, that are tailored to the local context [29, 30].

Third stage: Neighbourhood roads

Promoting economic accessibility and social mobility for communities, strengthening connectivity between poor residential areas.

To ensure the allocation process operates effectively, the proposed model emphasizes participatory, transparent, and outcome-oriented development governance, grounded in four key principles: citizen participation, transparency, cross-sector collaboration, and continuous monitoring and evaluation [31].

Figure 3. Budget allocation model planning for basic infrastructure development