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

Staff Climate Notes, August 11, 2021

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Public financial management (PFM) consists of all the government’s institutional arrangements in place to facilitate the implementation of fiscal policies.
“Green PFM” aims at adapting existing PFM practices to support climate-sensitive policies in response to the growing urgency to fight climate change.
Because of the cross-cutting nature of climate change and wider environmental concerns, green PFM can be a key enabler of an integrated government strategy to combat climate change.

The note outlines a framework for green PFM that emphasizes an approach combining various entry points:
- within the budget cycle,
- across the budget cycle,
- beyond the budget cycle.
Components highlighted for inclusion in a green PFM approach:
- fiscal transparency,
- external oversight,
- coordination with state-owned enterprises (SOEs),
- coordination with subnational governments.

Green PFM requires integrating climate sensitivity into existing PFM practices rather than creating entirely new parallel systems.
Cross-cutting coordination is essential given the pervasive nature of climate and environmental challenges across sectors and levels of government.
Fiscal tools and PFM processes can be leveraged to support both climate change mitigation and adaptation objectives.

A set of principles for implementing a green PFM strategy is identified, including:
- combining multiple entry points within, across, and beyond the budget cycle,
- ensuring fiscal transparency and robust external oversight,
- coordinating with SOEs and subnational governments to align fiscal actions with climate objectives,
- establishing strong stewardship located within the ministry of finance — this stewardship is described as paramount.