2.2. GREENING BUDGET SUPPORT
2.2.1. Background to greening budget support [21]
Budget support operations provide assistance to implement either national sustainable development policies (in the form of general budget support, under either SDG contracts or state and resilience building contracts – SRBC) or a sector strategy (in the form of sector reform performance contracts - SRPC). They foster ownership, support policy reforms, focus on results, build capacities and are the anchor for policy dialogue. The funds are transferred to the national treasury and these are managed according to national financial management systems. Thus, budget support also offers unique opportunities for environmental and climate change integration in national development and economic governance or in specific sectors, starting with the greening of the country’s policies, indicator frameworks, fiscal policies, public finance management, and domestic revenue mobilisation systems.
Budget support can also finance the implementation of national or sub-national climate change and environmental strategies, policies and plans. This is notably because:
- Environmental and climate change policies can only be meaningfully implemented through a whole-of-government approach. To address the urgent climate change and environmental challenges, green priorities must be at the heart of development strategies and incorporated into medium-term planning and annual budget allocation decisions.
- Budget support can strengthen the integration of environment and climate change in the partner country’s public finance management (PFM) systems. PFM ensures that the government respects aggregate fiscal discipline, does an adequate allocation of resources, delivers public services efficiently, and that public policies are implemented as intended and achieve their objectives in a transparent manner. PFM reforms are supported through various instruments, stand-alone projects, budget support, policy dialogue and through specialised agencies such as the IMF and the World Bank.
- Positive results in green public finance at international level have led to a growing interest in greening PFM systems. They are associated with a stronger public response to environmental challenges and the prevention and reduction of risks towards resilience, increase coherence in green public investments by making the case for a green economy, and can foster better access to green finance. See Annex 12 on greening PFM.
- There is a high potential to foster partner countries’ fiscal reforms to include green finance tools. Instruments such as environmental taxation allow for countries’ environmental challenges to be addressed, while encouraging sustainable consumption and production, and generating financial resources to decrease dependency on external financial aid.
Budget support in a context of fragilityWhen budget support focuses on specific sector policies and reforms, it focuses on creating the conditions for sustainable growth at sector level. Typical greening entry points are developed in the section on the analysis of budget support criteria under a green perspective (below). In a context of fragility, general budget support is provided under a state and resilience building contract (SRBC). In this context the entry points developed in the analysis of budget support criteria remain valid, and additional entry points may include: - Addressing the structural causes of fragility from a governance and environmental/climate change point of view. Climate change, biodiversity loss and environmental degradation can be drivers of fragility or conflict, and, in turn, this makes it more difficult to adapt to climate change and cope with the impacts of environmental degradation and biodiversity loss.
- The above implies identifying the links between fragility, conflict, scarcity of resources and conditions of access to these resources. Entry points should be identified for resilience, peace building and conflict prevention e.g. through the implementation of integrated water resource management, the support to an inclusive share of maritime resources, or by encouraging measures reducing pressure on productive land. Furthermore, fragility and energy poverty are also closely connected. Scaling access to clean energy and managing an energy transition can be truly transformative for communities in fragile or conflict-affected contexts.
- Linking with disaster risk reduction e.g. through the promotion of eco-DRR practices, favouring environmentally regenerative solutions to enhance resilience, including improved adaptation to climate change, build stability and provide a range of economic and social benefits. Crises and disasters also offer opportunities to ‘build back better’ focusing on environmental sustainability.
- Identifying entry points and, to the extent possible, quick gains to foster the resilience of the economy and country systems, to help them cope with exogenous or domestic shocks, e.g. due to more frequent and impactful extreme weather events.
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References
[21] The Budget Support Guidelines provide fuller explanations on budget support processes.