Promoting Fiscal Policies that Respond to Climate and Environmental Concerns

A shift toward green public financial management (PFM) is needed to mitigate greenhouse gas emissions and build climate-resilient public infrastructure. In order to accelerate this shift, IMF Capacity Development has stepped up its technical assistance and training to its members on green PFM.

Most recently, on February 10th, 2022, the IMF's Fiscal Affairs Department and Caucasus, Central Asia, and Mongolia regional capacity development center (CCAMTAC) organized a webinar on this topic, including a presentation on Switzerland’s experience with climate change and long-term fiscal sustainability analysis.

What's Green Public Financial Management?

Green PFM is the integration of climate and environment-friendly perspectives into PFM practices, systems, and frameworks, with the objective to promote fiscal policies that are responsive to climate and environmental concerns.

For example, green PFM seeks to:

• Ensure the coherence of fiscal policies and public spending with climate targets
• Set analytical requirements for the green impact of new policies
• promote accountability for the green impact of fiscal policy choices 

The IMF's Green PFM framework identifies:

• Entry points of the green dimension within the budget cycle
• Interactions with PFM functions across and beyond the budget cycle
• Ways to adapt existing PFM processes and tools

5 Guiding Principles for Implementing Green PFM

IMF staff identifies 5 guiding principles to ensure a successful rollout of green PFM:

1. Green PFM reforms should be integrated with the existing PFM reform agenda
2. While green PFM reforms constitute a whole-of-government undertaking, the ministry of finance as the custodian of public resources should be the primary driver
3. Several prerequisites are necessary for successful green PFM reforms. They require at least some basic elements of a functional PFM system to be in place, political backing and ownership, and some degree of “green” expertise needs to be developed for key actors in the PFM processes
4. Countries should look for an appropriate sequencing of green PFM reforms
5. Communicating on the progress of green PFM reforms is important to ensure buy-in from all stakeholders and manage expectations

The role of Public Investment in Greening the Economy

Climate change mitigation and adaptation add urgency and complexity to public investment management (PIM) reforms at a time of scare public resources.

The IMF's Climate Public Investment Management Assessment – launched in December 2021 – seeks to help governments:

• Address climate-related risks in infrastructure planning and investment
• Assess institutional readiness and gaps in PIM against the backdrop of climate change challenges
• Identify reform actions and explore capacity development support from the IMF and other organizations

Over the coming months, the IMF will conduct multiple C-PIMAs and continue to provide capacity development support to its members as they move towards more sustainable PFM practices. The IMF thanks its development partners for their support to the development and implementation of C-PIMA, particularly the European Union and Japan.

Useful links:

Summary of webinar with CCAMTAC (February 10)

Strengthening Infrastructure Governance for Climate-Responsive Public Investment

Climate-Sensitive Management of Public Finances—”Green PFM”

IMF Infrastructure Governance website

IMF Inclusive Growth course, module on climate change

IMF Public Financial Management online course