🔹 Summary
This report analyses Indonesia’s fiscal stimulus response to the COVID-19 pandemic (FY2020–2021) through a climate and environmental lens, assessing the extent to which recovery spending supported green and sustainable outcomes.
Indonesia announced a substantial fiscal stimulus package of approximately IDR 1,453 trillion during this period. However, only about 10 percent of this spending was environmentally relevant, and a mere 2 percent qualified as “green” stimulus. The majority of environmentally relevant spending was categorized as “dirty,” reflecting support for carbon-intensive or environmentally harmful activities, particularly in sectors such as transport, energy, and industry.
Sectoral analysis reveals that the transport sector received the largest share of environmentally relevant stimulus, followed by industry and energy. Yet, across most sectors, green investments were significantly outweighed by measures that reinforced existing carbon-intensive pathways. The waste sector was the only area where stimulus was fully aligned with green objectives, though its overall share remained very small.
The report also evaluates how stimulus measures align with Indonesia’s national development priorities, particularly low-carbon development, climate resilience, and environmental quality. While a large share of stimulus nominally contributes to low-carbon development goals, more than 80 percent of such spending has negative or “dirty” environmental impacts. Positive contributions—such as renewable energy investments, mangrove restoration, and climate resilience programs—remain limited in scale relative to the overall stimulus envelope.
In comparative perspective, Indonesia’s green stimulus performance is modest. While it ranks mid-range among peer countries in terms of the share of green stimulus, it lags behind countries such as Nigeria, Mexico, and Malaysia in leveraging recovery spending for sustainable transformation.
The report identifies significant opportunities to “green” fiscal stimulus more effectively. These include reorienting subsidies toward renewable energy, embedding environmental conditions in industrial and infrastructure support, strengthening nature-based solutions in agriculture, and aligning fiscal incentives with green industry standards. International examples demonstrate that well-designed stimulus measures can simultaneously support economic recovery, job creation, and climate objectives.
Overall, the report highlights a critical policy insight: while Indonesia’s fiscal response was large and timely, it did not fully capitalize on the opportunity to accelerate a green recovery. Future fiscal interventions—particularly in times of crisis—offer an important pathway to align economic resilience with long-term sustainability goals.
🔹 Preparation of the Report
This report was prepared by Melisa Sudirman (Consultant), as part of the World Bank team led by Arun Arya (Senior Public Sector Specialist, EEAG1/Task Team Leader), under the World Bank’s Public Financial Management (PFM) operation in Indonesia.