World Bank Approves $2.1B Package to Boost Jobs, Clean Energy in Indonesia

The World Bank has approved a landmark US$2.128 billion blended finance package to support Indonesia’s drive for high-income status by 2045. The dual investment initiative aims to strengthen financial and clean energy sectors, create jobs, and expand electricity access to millions—marking a pivotal moment in the country’s long-term development strategy under its new government.

A Strategic Investment for a High-Income Future

This investment marks the first World Bank-backed initiative in direct support of the Indonesian Government’s ambitious Vision 2045 goal to become a high-income nation. With a population exceeding 270 million and a growing economy, Indonesia is poised to become a major global economic force—if it can overcome key structural hurdles related to energy, infrastructure, and financial inclusion.

“These reforms and investments will help implement key government priorities and advance the Bank’s own goals to create jobs and expand energy access in one of the largest and most dynamic economies in the region,” said Manuela V. Ferro, World Bank Vice President for East Asia and the Pacific.

Reform-Driven Growth: $1.5B for Policy and Market Modernization

The larger portion of the package—US$1.5 billion—is allocated to the Indonesia Productive and Sustainable Investment Development Policy Loan, a comprehensive policy reform program. Its objectives include:

• Strengthening digital financial services to increase financial inclusion.

• Removing credit infrastructure constraints, facilitating easier access to financing for SMEs.

• Expanding capital markets to support innovation and attract investors.

• Climate and disaster risk adaptation in the financial and infrastructure sectors.

• Streamlining renewable energy procurement by reducing local content mandates that previously limited international investment.

• Aligning industrial estates with global environmental and climate standards.

• Implementing land value capture strategies to attract private capital into infrastructure development.

These reforms are expected to create a more competitive, sustainable investment environment, paving the way for both domestic and international business activity in Indonesia’s emerging markets.

Clean Energy and Electrification: ISLE-2 Program

Complementing the reform agenda is the Sustainable Least-Cost Electrification-2 (ISLE-2) Project, a blended finance program aimed at expanding clean energy infrastructure and access. With US$628 million in financing, including:

• US$600 million loan from the World Bank’s IBRD,

• US$12 million in grants from the IBRD Surplus-Funded Livable Planet Fund,

• US$16 million in grants through the Sustainable Renewables Risk Mitigation Initiative (SRMI),

  • including US$6 million from the UK via the Energy Sector Management Assistance Program (ESMAP),

  • and US$10 million from the Green Climate Fund’s SRMI-2 program,

the project will:

• Deliver electricity access to 3.5 million people in Kalimantan and Sumatra.

• Support the generation of 540 MW of solar and wind energy.

• Cut power generation costs by at least 8%.

• Reduce greenhouse gas emissions by 10% in target regions.

The project is expected to significantly boost livelihoods and employment, especially in female-headed enterprises, through affordable and reliable electricity access.

A New Financing Model: Step-Up Loan Product

ISLE-2 is also notable for piloting the World Bank’s new “step-up” loan product, which offers reduced interest rates for nine years and incentives for refinancing after project completion. This model is designed to attract private investment over time, offering both immediate financial relief and long-term sustainability.

This approach fits within the World Bank Group’s broader Originate to Distribute strategy, where public finance is used to catalyze private sector participation. In this case, the financing structure is expected to mobilize an additional US$345 million in private capital for solar and wind energy investments across Indonesia.

Indonesia’s Reform Momentum

Indonesia has already demonstrated resilience and sound fiscal management, even amid the global disruptions caused by the COVID-19 pandemic and slowing international trade. The current administration’s focus on investing in human capital, financial sector modernization, and universal electrification aligns closely with the World Bank’s priorities.

The Indonesian Government is also establishing a deregulation committee tasked with unlocking innovative financing strategies and removing regulatory bottlenecks that hinder large-scale private capital engagement.

A Vision for Resilient, Inclusive Growth

“With over 3.5 million people gaining access to electricity, the operation is projected to catalyze improved livelihoods and creation of more and better jobs,” said Carolyn Turk, World Bank Director for Indonesia and Timor-Leste. She emphasized the impact on marginalized communities and small businesses, particularly those led by women.

As Indonesia advances toward its Vision 2045 objectives, the combined weight of policy reforms, infrastructure investment, and international collaboration signals a new chapter for the country—one driven by clean energy, equitable growth, and economic resilience.