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As countries recover from COVID-19 pandemic shock, there are growing calls across societies to build forward better, greener and more inclusive, to accelerate the transition to net zero-carbon economies.

As part of the SDG budget reform agenda, UNDP launched a Guidance Note for governments to integrate climate change into budgeting. It focuses on  two stages of the budget cycle-

  • Macro fiscal framework
  • budget preparation and approval

Orienting the accounting and reporting systems to capture climate change relevant data is central to the integration process. Therefore IMF, UNDP, and the World Bank have been  supporting countries in climate and green budget tagging reforms as it provides the necessary underpinnings for policymaking and accountability through the provision of relevant data.

The Note articulates three key principles for the integration process: 1. Build on a country’s systems and practices to ensure sustainability. 2. Ensure flexibility in the process and align the efforts with the budget cycle. 3. Clearly define roles and responsibilities and ensure an effective coordination mechanism.

Considerable research-related work takes place in the technical agencies of the government responsible for Environment, Climate Change, Science and Technology and other related ministries. However, it does not form part of the budget preparation process, particularly in the macro-fiscal forecasts. The guidance note argues for channeling this data and knowledge to inform the macro-fiscal estimates. It recommends the set up of a forum headed by the Ministry of Finance with participation from relevant government agencies, including the technical directorates, central bank, research institutes, academia, and private sector to provide necessary analytical support, for preparing fiscal estimates.

For the budget preparation stage, it recommends providing climate orientation to the budget circular  to obligate the spending agencies in preparing budget submissions through a climate lens. However, while the guidance note provides insight into the development of knowledge products (guidance notes, procedures, and manuals) and capacity support to the spending agencies, attitudinal change is the key.

For budget approval and accountability, it recommends including climate change in budget hearings and negotiations for informed decisions by policymakers. Climate change inclusion in Medium-term Expenditure Framework, Citizens Budget, Executive Budget proposal, Enacted Budget will lead to better transparency and accountability to legislature and citizens regarding climate adaptation and mitigation.

 

One size doesn’t fit all – bringing out the best of each country

Countries have a varying level of sophistication in public financial management (PFM) practices and diverse contexts therefore instead of being prescriptive, the Note advocates for drawing together local knowledge and the relevant stakeholders in the budget process.

An important consideration for the guidance note is its relevance to different settings. While it is applicable to both annual and medium-term budgeting, it is important to emphasize that the budgets that have performance information over a medium-term horizon will provide an enabling environment and an advanced platform for climate change integration and facilitate evidence-based decision-making. The role of Parliamentarians is critical and can play the gatekeeper’s role during the legislative scrutiny of budgets to ensure that the Executive Budget Proposal is prepared with a climate lens.

As climate change and the policy responses to combat climate have a disproportionate effect on different social groups, the Note also considers how gender and social inclusion aspects can be addressed in tandem to minimize adverse impacts of climate change on the poor. It recommends climate public expenditure and institutional review tools, vulnerability loss and damage assessments, and fiscal incidence analysis to ensure inclusive budgeting.

The note is useful for the Ministries of Finance, Ministries of climate change and environment, sector ministries and local governments. The countries that either have embarked upon mainstreaming climate change in their governance or PFM system or the ones that are planning to do so can make use of this note for a coherent approach

Asif Shah is a Public Finance Adviser at UNDP, Climate Finance Network and Governance for Resilient Development in the Pacific Project.

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