Review of Nepal’s Application of Climate Change Budget Code

In 2011, a study on the Future for Climate Finance in Nepal was lead by the Overseas Development Institute (ODI) in collaboration with the National Planning Commission (NPC) of Government of Nepal and the UNDP-UNEP Poverty Environment Initiative (PEI) and Capacity Development for Development Effectiveness (CDDE) facility for Asia and the Pacific. The study examined the development effectiveness dimensions of climate finance and concluded that the climate finance in Nepal is at an formative stage and that coordination challenges were emerging. The study offered a forward looking perspective on how climate finance may be administered in the years ahead, and suggested that the national budget should incorporate all external (ODA and climate finance) and domestic revenues, and allocate public finance under strong policy direction, and be accountable to the Parliament. In essence the climate finance would be channeled through the public finance system rather than relying upon a dispersed set of delivery mechanisms, which would require that the public financial management system is able to budget, track and report on climate finance through all sectors and strengthen the link between policy objectives and resource allocation by making spending decisions more explicit and therefore open to scrutiny.

As a follow up NPC in collaboration with UNDP-UNEP PEI examined the existing climate finance situation and institutional arrangement through a study on Climate Public Expenditure and Institutional Review (CPEIR). In addition to identifying institutions that had climate related programmes and assessing the volume of budget allocated to climate activities, the CPEIR also noted several gaps in tracking climate finance. The study suggested, among others, to begin using climate budget code in order to facilitate tracking of climate budget and expenditure. To that effect, the NPC developed coding criteria and procedure through series of consultations with the stakeholders, and introduced climate budget code in the national budget of the Fiscal Year 2013/14. The national budget announced by the Ministry of Finance and published in the Redbook incorporates climate codes, making official an analytical framework to calculate government funds channeled for programmes related to climate change.

Since it is the first time that the climate code has generated information on actual climate public finances, the information has in 2013 been reviewed to evaluate gaps so that corrective measures can be taken to improve the criteria for coding and make it more robust in the years to come. The review is also intended to facilitate devising methods for tracking climate finance at the local level. Review of Nepal’s Application of Climate Change Budget Code.

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