Occasion, place, date

Good Financial Governance: Strengthening country systems

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• Objective of this session

• Development effectiveness and Good Financial Governance

• Examples of how to strengthen GFG and the country system

• Role of Climate Public Expenditures and Institutional Review (CPEIR)

• Key questions

Content

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What you can expect to learn from this session:

• why and how climate finance can challenge good financial governance in a country

• how national public finance systems can be strengthened to ensure coherent delivery of climate finance

• how Climate Public Expenditures and Institutional Review (CPEIR) can help to assess the current public spending that is dedicated to climate relevant activities (Exercise)

• how Transparency International perceives corruption risks related to climate finance (Video Interview)

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Development effectiveness and Good Financial Governance

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Development effectiveness and climate finance

• The Paris Declaration on Aid Effectiveness (2005) asks for increased efforts in the harmonisation, alignment and management of aid and for results with a set of monitorable actions and indicators.

• According to the Busan-Declaration, Article 34 (2011) climate policy measures should be “financed, delivered and monitored through developing countries’ systems in a transparent manner”

• Based on the declarations, donors

• have committed to base their overall support – country strategies, policy dialogues and development cooperation programmes – on partners‘ national development strategies

• to use country systems and procedures to the maximum extent possible

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Good Financial Governance

Source: GIZ

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Common Challenges of Governing Climate Finance (I)

Climate strategy formulation• No coherence with national development strategies and mainstreaming of climate

relevant aspects within development planning• Lack of cost assessments and financing strategies• Insufficient analyse of climate related impacts of fiscal policies and hardly any use

the potential of these policies for efficient climate protection

Institutional framework • No coherent overall architecture of climate finance with clear responsibilities and

coordination mechanisms• No established distribution system for the decentralised use of climate finance• Insufficient consideration of key financial governance principles such as control of

climate finance by the supreme audit institutions and due awareness of parliament and civil society

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Common Challenges of Governing Climate Finance (II)

National management of climate funds vs. national budget: • Lack of transparency of national budgets and the establishment of internal control

mechanisms (prerequisite for sufficient absorption capacity for climate finance)• Insufficient capacity of the national public system for the administration of extra-

budgetary funds

Implementation of climate projects:• Lack of sustainability of projects due to insufficient consideration of climate finance as

part of the regular process of national public finance

Fiscal decentralization:• Engage at the local level though decentralisation of spending structures (and ensure

strong local administrative capacities)

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Corruption and Integrity Challenges in Climate Finance

Transparency and anticorruption Climate finance also needs to take into account anticorruption: corruption risks are on international, national and project level due to:• High disbursement pressure on the side of donors as well as complex and opaque

international funding mechanisms • Lack of transparency and clarified procedures for public disclosure during decision

making and the implementation of projects• Lack of clear anti-corruption policies and accountability mechanisms, procedures for

civil society participation and codes of conduct and training for staff • Embezzlement and elite capture of climate finance revenues• Fraud and conflicts of interest in accounting as well as Measuring, Reporting and

Verification (MRV)• Double counting of emissions (and associated financial implications)

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Different Channels for Climate Finance

• Resources managed outside country systems• Project finance (a range of channels are used, often outside the national

budgetary system)• Multi-donor trust funds (also including domestic trust funds with

involvement of donors)

• Country Systems • International funds approached by National Implementing Entity (not

necessarily the Ministry of Finance, hence a parallel mechanism needed)• Extra-budgetary fund (domestic and international funds channelled through

the budget)• National Budget (domestic and international funds channeled through

budget through general budget support )

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Simplified Budget Cycle and Climate Finance (CF)

Source: adapted from UNDP 2013

Public Climate Finance

• Coherence• Predictability• Transparency• Gender Equity

Planning

Budget Preparation

Budget Proposal

Budget Approval

ProcurementAccounting

Internal Auditing

Reporting

External Auditing

CF entry point: Formulation of Key Performance Indicators

CF entry point: Budget Coding considering climate relevance

CF entry point: Expenditure Execution Reports (incl. climate considerations)

CF entry point: Auditor-General using performance based auditing of climate expenditures

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Principles of GFG in climate financing

Alignment: central role for national institutions during the process of establishing the climate finance architecture in a country

Coherence of the climate strategy and development planning and medium–term financial planning

Effectiveness through consideration of the climate relevance of other fiscal policies

Sustainability through the consideration of cost impactsPredictability of climate finance spending as part of the national budgetAccountability through legitimacy and accountability obligations

Source: GIZ

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Examples of how to strengthen GFG and the country system

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Examples of how to strengthen GFG and the country system:Financing strategy for NAP in CambodiaBackground: • The National Adaptation Plan’s (NAP) implementation is unclear due to a lack of a

financing strategy, including an overview of costs for climate change adaptation measures, setting of priorities for actions and a strategy on mobilization of resources.

• Climate change is not yet fully integrated into development planning and budgeting. MEF or MoE can’t monitor NAP’s implementation.

Approach• Support Ministry of Environment (MoE) in developing a NAP financing strategy

• Assess financial demands and supply (from national, international, public and private sources) for implementation of NAP-related activities

• Strengthening the capacities of the MoE to coordinate the NAPs financial implementation and the access to international climate funds, (including GCF access and the NIE selection process)

• Support MoE in providing climate change input into programme-based budget

• Strengthening the integration of climate change adaptation aspects in line ministries’ sectoral planning processes as the basis for future budget allocations and developing a corresponding M&E system

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Example: Strengthening institutional coordination in order to integrate climate change into national planning and budgeting - Namibia

Background: • The key aspects of the Namibian National Climate Change Strategy and Action Plan

(NCCSAP) 2013-2020 are not integrated into line ministries’ annual plans, sectoral strategies and the National Development Plan.

• Line ministries currently have no means to request additional resources since budget proposals need to be in line with key strategic documents of the ministry.

• Need to more precisely specify, prioritise and cost the activities identified in the NCCSAP. Approach

• Supporting the Ministry of Environment and Tourism (MET) in • analyzing and identifying core climate change considerations in line with the NCCSAP to be

integrated in the national planning system; and • in developing a step-by-step work plan outlining the roles and responsibilities of the

stakeholders involved in its application.

• Supporting the integration of climate change considerations developed under 1. into the planning (i.e. NDP 4 mid-term review, integration in NDP 5, sectoral plans and ministerial annual work plans) and budgeting cycle.

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Example: Political economy considerations in climate financing -Bangladesh

Background• Implementation of the Bangladesh Climate Change Strategy and Action Plan• Donors vs Government: Bangladesh Climate Change Resilience Fund (BCCRF) vs.

Bangladesh Climate Change Trust Fund (BCCTF)• Ministry of Environment and Forestry (MoEF) vs. Ministry of Finance:

o Management of climate financing through the BCCTF or the Climate Fiscal Framework

o Role of the National Designated Authority?

Approach• Climate Fiscal Framework – Coding system for accounting (budget support?) or

comprehensive climate finance framework • Division of labor within MoEF: assumption of tasks between departments, coordination

capacities

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Principles of effective delivery of climate finance on the national level (I)

Policy principles Institutional principles Public expenditure principles

• Policies shall be designed for ease of implementation

• The legitimacy of policies shall be recognised by stakeholders

• Policies shall be coherent with national development policies

• Policies shall promote transparency in climate finance delivery

• A national mechanism shall exist for coordination between institutions involved in climate finance delivery

• Institutions shall demonstrate a strong ability to change and innovate

• Climate change institutions shall be anchored at the local level.

• Climate change expenditure shall be planned and budgeted for in the annual budget formulation process

• Climate change expenditure shall be executed through government systems during the budget year

• Climate change-related expenditure shall be subject to reporting and accounting

• Climate change-related expenditure shall be subject to external oversight and scrutiny

Source: ODI 2013. Measuring the effectiveness of public climate finance delivery at the national level

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Role of Climate Public Expenditures and Institutional Review (CPEIR)

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CPEIR classification of climate change relevant activities

Climate Public Expenditures and Institutional Review (CPEIR):

A systematic qualitative and quantitative analysis of a country's public expenditures and how they relate to climate change

Methodology developed by UNDP and ODI in 2012

CPEIR reviews and examines the linkages between:

• national climate change policy, • the institutional structures through which policy is channelled; and• the resource allocation processes of the public sector towards the

implementation of relevant projects.

CPEIRs have been completed so far for the following countries:• Nepal• Bangladesh• Thailand• Cambodia• Samoa

Source: http://www.climatefinance-developmenteffectiveness.org/about/what-cpeir

>> Follow up: CPEIR Quiz Exercise

• Morocco• Philippines• Indonesia• Vietnam • Pakistan

+ three CPEIRs underway in Ethiopia, Tanzania and Uganda

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Climate Public Expenditures and Institutional Review (CPEIR)

• Starting Point• no internationally recognized definition of ‘climate finance’ • CPEIR offers a tool with which to review existing national policy documents which

can provide important insights into how climate change actions – and hence the associated expenditures – are being defined in each country

• 4 step approach: • 1. Defining the extent of total public expenditure that was to be analyzed in terms

of climate relevance (e.g. the national budget, extra-budgetary funds, international funding).

• 2. A review of what data sets were available for analysis (e.g. budget estimates versus actual expenditures).

• 3. This information was then filtered by asking which expenditures were relevant to climate change and inquiring into the relevance of those expenditures

• 4. Subsequent analysis was then carried out to examine a number of different issues (e.g. adaptation/mitigation spend)

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Some conclusions on using country systems

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Using Country Systems to Manage Climate Finance

Benefits Challenges/Risks

• Improves country’s ownership over results of financing

• Strengthens a country’s own systems instead of parallel ones

• Reduces duplication and transaction costs

• Strengthens transparency and accountability over climate finance and public resources in general

• Promotes mainstreaming of climate change considerations into sector and local plans and budgets

• Links core planning with budgeting processes for climate change finance and ensures the sustainable management of resources in the future

• Funds may not be allocated for intended purposes Fiduciary

Strategic • Aligning climate change strategy with national development plans and results is important

• Prioritisation of climate change programs

Tracking and M&E

• Results may emerge slowly• Public climate finance is being disbursed through

multiple modalities

Institutional • Capacity building for new institutional frameworks and public financial management needed

• Strengthen mechanisms to measure the impact of climate policy and finance needed

• Climate finance requires strengthening of engagement of multiple stakeholders

Environmental • Regulation to avoid negative environmental effects might be insufficient

Political • External funders may lose control over their strategic objectives

• Strong political leadership and country ownership is necessary

Source: Using Country Systems to Manage Climate Change Finance. Global Forum Summary 2013.

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Good Financial Governance

How you can further apply this information in your country …

Check the relevance of measures that are financed by your institution/country to climate change adaptation or mitigation.

Check whether climate change objectives are integrated into the budgeting process of your institution/country

Check the possibilities to improve mainstreaming of climate change in the budgetary process of your institution/country

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Thank you for your attention!!!

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Criteria for use of Country Systems by climate finance (I)

Criterion Driving questionsPublic climate change finance is focused on results that meet country priorities

Do major climate change-related funded programmes appear as priority actions within national climate change strategies and national development plans?

Civil society and the private sector operate within an environment which maximises their engagement in and contribution to climate compatible development

Do climate change policy platforms provide for representation of key stakeholders from government, civil society and the private sector?

Do policy platforms provide opportunities for all stakeholders to contribute to the process?

Information on public climate change finance is publicly available

Do mechanisms and modalities that promote transparency exist?

Can those mechanisms and modalities integrate the climate finance dimension?

If not, how could those mechanisms and modalities be amended to reflect climate finance?

Source: ODI criteria for use of country systems by domestic and international climate finance (CSCF), not published, presented at the Global Forum on Using Country Systems to Manage Climate Change Finance 2013

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Criteria for use of Country Systems by climate finance (II)

Criterion Driving questionsPublic climate change finance is predictable over the budget year

Is the credibility of the central government budget improving with respect to climate finance?

Public climate change finance is on-budget that is subject to parliamentary scrutiny

Does the legislature and its relevant committees scrutinise government financial performance, including performance against climate change-related objectives?

Gender equality and women’s empowerment is a consideration in public climate change finance delivery

Is the planning and prioritization process for the major climate change related programmes gender aware?

Are climate finance allocations systematically gender disaggregated?

Countries Public Finance Management and procurement systems are strengthened for the delivery of climate finance

Does the national budget link to climate change policy priorities, with systems in place to ensure timely implementation and reporting?

Source: ODI criteria for use of country systems by domestic and international climate finance (CSCF), not published, presented at the Global Forum on Using Country Systems to Manage Climate Change Finance 2013