Four Ways to Use Public Financial Management to Address Climate Change

A coordinated public financial management approach to climate action helps bring solutions to those most affected by climate change. Photo: ADB
A coordinated public financial management approach to climate action helps bring solutions to those most affected by climate change. Photo: ADB

By Julitta Ponniah, Eriko Tominaga

Bangladesh has made dramatic strides in reducing the deaths and economic impact of climate-related weather events. Public financial management has played a role in these achievements, offering important insights for other countries.

Bangladesh is one of the world’s most affected countries, in terms of the impacts of climate change. Its geography, large river deltas, low-lying coastal areas, and location of its population make it vulnerable to tropical cyclones, storm surges, floods, and salinity intrusions.

It has experienced over 185 climate events in the past two decades, with increasing frequency and ferocity. Sea levels are rising, reducing liveable and arable land, and salinity is increasing, threatening crops and access to drinking water. It is the 8th most populated and 9th most densely populated country in the world, which potentially increases the human and economic toll of disasters.

 Despite its vulnerability to natural disasters and propensity for large losses, Bangladesh has reduced the impacts of climate events, with economic losses declining and deaths reducing by 100-fold in the past five decades. Over this period, Bangladesh invested more than $10 billion in preparing, mitigating, and adapting for climate change.

Investments in disaster preparedness started in the 1970s, following the devastating loss of 300,000 people in cyclone Bhola; and investments in mitigation and adaptation gained momentum in the 2000s, catalysed by the Bangladesh Climate Change Strategy and Action Plan. An enabler was Bangladesh adapting elements of ‘green’ public financial management – where climate factors are considered in the process of planning, budgeting, accounting, reporting, and auditing public funds.

This has resulted in a coordinated approach to climate action across ministries and all tiers of government, programming for climate change, tracking of climate budget, assigning of responsibilities, and monitoring of climate efforts. It has also yielded tangible results like building 6,000km of coastal embankments and 14,000 cyclone shelters, to mitigate climatic effects, and inventing new farming techniques and seed varieties tolerant of salinity and floods, to adapt to climate change.

The role of public financial management in addressing climate change is undeniable and provides valuable lessons for other countries.

Our research has found four key areas where ‘green’ public financial management has been supportive in addressing climate change in Bangladesh, which might be applicable to other countries as well.

Develop a Comprehensive Climate Fiscal Framework: A framework that provides a clear roadmap for climate finance, analyzing both supply and demand for climate funds. The framework should evaluate the climate impact of fiscal and tax policies, such as VAT and subsidies, and determine the sequence and priorities of climate actions. Additionally, it's essential to estimate funding gaps and identify required climate finance from both domestic and international sources, and explore options like insurance policies, blended finance, and green banking, as Bangladesh did with its updated Climate Fiscal Framework in 2020.

Integrate Climate Factors in Planning: Incorporate findings from the climate fiscal framework into annual budgets, sector strategies, and medium-term budget plans. By integrating these findings, countries can recognize the fiscal benefits and savings from mitigation and adaptation efforts compared to potential losses from adverse climate events.  For nations like Bangladesh, where natural disasters result in significant annual losses, prioritizing climate factors in planning is not just beneficial but a necessity.

Start climate tagging of budgets: Introduce methodologies for tracking budget expenditure related to climate themes and programs. Regular publication of detailed climate budget reports, like Bangladesh's Climate Financing for Sustainable Development report, can offer insights into climate programs and budgets allocated to various departments, ensuring transparency in climate expenditures.

Enhance Accounting Systems: Introduce codes and classification in government accounting systems, akin to Bangladesh's iBAS++ enhancements, to facilitate efficient tracking of climate expenses. These codes can allow for linkages to climate budgets, programs, plans, and strategies, ensuring accurate accounting of climate expenses.

Despite successful introduction of some ‘green PFM' principles, weaknesses remain in budget execution, transparency, and reporting in Bangladesh, as highlighted by the 2016 Public Expenditure and Financial Accountability report. Issues like an absent internal audit system and delays in publishing and auditing government accounts, limit access to credible public financial information. The 2020 Climate Fiscal Framework emphasizes the importance of robust accountability and oversight mechanisms, especially as climate finance grows. It advocates for internal audits, bolstering performance audits of climate expenditure, and promoting citizen engagement through community organizations and media for a thorough analysis of climate spending.

Bangladesh has made remarkable progress in tackling climate change. In the past few decades, it has changed the trajectory of climate impacts, built resilience to calamities, and adapted living to harsh weather conditions. This achievement is not by chance but due to concerted and continuous effort by the government and people of Bangladesh.

Institutions and individuals in Bangladesh now prepare, plan, program, and budget for climate change.  The role of public financial management in addressing climate change is undeniable and provides valuable lessons for other countries.