Budgeting for sustainable development

Can you guess what country has the most ambitious sustainable development budgeting model in the world?

International research institute IDDRI analysed the national sustainable development reviews  submitted to the UN and found that  countries have applied very different methods of integrating the Sustainable Development Goals (SDGs) into their budgets.

Countries face different sustainability challenges, and their national sustainable development goals vary. In addition, their administrative structures and budget practices differ from each other. However, the role and commitment of the Ministry of Finance are usually considered to play a key role for successful sustainable development budgeting. Another thing shared by different countries is that the goals to be examined in the budget are usually defined by the Government, although in some countries, such as Canada, Austria and South Korea, the inclusion of the gender equality goal in budget examination is laid down in law.

Budget information is used in different ways 

The target group of budget information on sustainable development may vary. The information may be intended mainly for decision-makers, for instance to support the budget decisions taken by the Government or Parliament. In the broadest case, it may be targeted at citizens or even the international community.

Sustainable development budgeting can also serve as a tool for promoting participation. For example, to support equality budgeting, Ireland has set up an advisory group consisting of researches and other stakeholder representatives in addition to ministries.

There are also differences in the stage in which sustainable development is examined and in how this examination is utilized when budget decisions are taken.

Some countries compile budget information on sustainable development afterwards or at the very end of the budget process, in which case it serves mainly for reporting purposes. Other countries, in turn, make impact assessments already when preparing the budget, so that it is possible to utilize them in decision-making. In the most ambitious cases, sustainable development examination, goals and indicators can be integrated from the very beginning into the entire budget process and decisions on the allocation of appropriations.

There are various tools for examining the budget from the perspective of sustainable development

Individual SDGs can be included in the budget and its monitoring for instance per administrative branch or functional budget category.

Some countries (e.g. Finland, Sweden and Norway) have supplemented their budget proposals with a qualitative description of the implementation of the SDGs. Others (e.g. Mexico, Columbia and Nepal) examine and categorize their budget programmes and expenditure from the perspective of the SDGs that they support. There are also methods under development for monitoring appropriations. For example, the European Commission is improving the assessment of the share of climate finance and its tracking and monitoring within the EU’s Multiannual Financial Framework (MFF).

Different countries use different tools for examining their budgets. The tools can be of the “traffic light” type, such as the classification the Italian Ministry of the Environment uses for assessing various subsidies: “environmentally friendly”, “neutral”, “environmentally harmful” and “no information”. Sweden applies a method of five questions to assess the gender impacts of proposed budget appropriations.

The OECD has developed tools to support governments especially in  gender budgeting and green budgeting. In addition, some forerunner countries have  been focusing their efforts on methods. Canada is one of the countries leading the way in gender budgeting and more broadly in addressing demographic diversity factors in budgeting. Ireland, in turn, is rapidly developing climate budgeting – and so is France, which has also been building a system for assessing the entire state budget from the environmental perspective.

The most ambitious sustainable development budgeting model can probably be found in New Zealand, which launched the first wellbeing budget in the world in 2019. The budget was based on five priorities defined by the Government. The preparation of the budget underlined the strategic and cross-sectoral perspective as well as impact assessment, which combined the cross-examination of economic, social, ecological and cultural impacts with a long-term perspective (intergenerational aspect). The new kind of approach is told to have brought ministries closer to each other and strengthened holistic budget thinking.

A lot of work remains to be done in sustainable development budgeting

According to international estimates, countries are only taking their first steps in sustainable development budgeting. The measures have mainly helped governments to improve the visibility of their SDGs. However, they have not yet necessarily led to more coherent policy-making with respect to the SDGs or had any significant impact on the allocation of budgetary resources.

Cross-sectoral and systemic sustainable development budgeting requires administrative resources and capacity-building, especially in the early stages. Suitable budget tools and a shared knowledge base of  administrative branches need to be built to make it possible to tie the SDGs to concrete policy measures and budget items. The public officials responsible for operational and financial planning need to be trained, and coordinated cooperation between different administrative branches needs to be strengthened.  In the future, we will also need methods for assessing the impacts of sustainable development budgeting.

This is where the supreme audit institutions may have a key role.

The blog post is based on the NAOF’s project for reviewing the framework conditions of phenomenon-based budgeting: Development of phenomenon-based budgeting requires a shared understanding and commitment from the public administration.