Climate Resilient Economic Growth

blog.May

Climate change creates a new context for policy-making in developing countries. The economic costs of climate change can put their economic growth prospects at risk and endanger the achievement of their development objectives. At the same time, development can inadvertently increase vulnerability to climate change. Building “climate resilience” into development policies can help to reduce the costs of climate change and sustain economic growth and social well-being over time. Climate-resilient development includes climate change in the baseline for development planning.

The cross-sectoral nature of climate impacts calls for a co-ordinated approach by the public sector, civil society and development partners across levels of governance. Climate-resilient development needs to go beyond individual programmes and projects and consider systemic aspects and linkages between economic development, climate change and resilience. This need has been acknowledged in international discussions that have recently shifted from project- and programme-based approaches for adaptation to promoting national, strategic responses to the effects of climate change. This includes the call for Least Developed Countries to develop National Adaptation Plans (NAPs) in the framework of the United Nations Framework Convention on Climate Change (UNFCCC).

There is a strong link between socio-economic development and resilience to the effects of climate and climate change. Extreme climate events can reduce economic growth(McDermott et al., 2013; UNISDR, 2013). This slowdown, which can affect a country for several years, is in marked contrast with developed countries, where disasters have the potential to act as an economic stimulus (Cavallo and Noy, 2010; Loayza et al., 2009). Developing countries also bear the heaviest human burden. Between 1970 and 2008, 95% of deaths due to natural disasters occurred in developing countries(IPCC, 2012). This vulnerability is due to a combination of factors, including a lack of coping capacity, low levels of disaster preparedness and high dependence on the agricultural sector for development and livelihoods.

Development itself is one of the most effective means to increase the capacity to cope with disasters. Higher disposable income, better education and healthcare, and improved transport infrastructure are some of the characteristics of development progress that also strengthen resilience. But this is not automatic. Development choices can lead to a concentration of economic activities and assets along rivers and coastlines; places which are vulnerable to flooding, storm surges and sea-level rise. There is also evidence that certain characteristics of middle-income countries, such as a high reliance on physical infrastructure for GDP creation and a high interconnectedness between economic sectors, can increase their vulnerability to extreme events (Benson and Clay, 2004; Ghesquiere and Mahul, 2010; Okuyama, 2009; Cummins and Mahul, 2009).

Climate change adds a new dimension to this relationship between development and resilience. Development as usual – and even development that strengthens resilience against current variability – might not be a sufficient strategy to prepare for future climate challenges. Gradual changes in climate can reduce labour productivity and give rise to additional costs for climate-proofing infrastructure and productive activities. This can even lead to shifts in countries’ comparative advantages. Disaster risk is likely to increase, as certain phenomena such as temperature extremes, heavy precipitation and extreme coastal high water levels become more frequent (IPCC, 2012). The parallel developments of economic and population growth and climate change can have significant consequences.

To get benefitted from the growth model of economic growth with the climate resilient development, countries need to adopt the below recommendations:

Sustain leadership and high-level political commitment: climate resilience efforts need to be driven by strong and visible leadership. This will help to establish and maintain high-level political support across the government.

Formalise national development visions and defining key climate resilience objectives: The formulation of a national vision for climate-resilient development helps raise awareness of the benefits and opportunities of enhanced resilience, thereby building momentum for institutional and policy change.

Create institutional mechanisms that encourage cross-sectoral co-ordination and high-level political commitment:

The institutional system needs to be explicitly designed to facilitate and encourage co-ordination across ministries.

Secure dedicated financing for resilience investments: Financing for resilient activities needs to be leveraged and it should support coherence in investments for climate change resilience and economic growth projects. Alignment with the national budget should help to ensure that domestic resources complement international financing.

Keshav C Das

May 28, 2016

 

Financing INDCs’ implementation?

unfccc_indcIntended Nationally Determined Contributions (INDCs) were intended to be a way to clarify how each Party to the United Nations Framework Convention on Climate Change (UNFCCC) could contribute to averting dangerous climate change and demonstrate progress from their current position. To date, much analysis of INDCs has understandably focused on the ambition and, in the case of mitigation, the likelihood of achieving goals in the context of current policy and economic trends.

An impressive numbers of INDCs are now submitted to the UNFCCC during the Paris Summit and now the most relevant question, faced by the parties is- how to implement it? Indeed, finance, technology and capacity can be the difference between achieving – or perhaps even exceeding – commitments, or failing to meet them. Therefore, a critical gap assessment is necessary within the countries on availability of resources, technologies and capacities to implement.

One of the key concern and gaps on implementation of INDCs is financing. This is a contested issue, both from the perspectives of ‘source of financing’ and lack of coherent information on mobilizing and utilization of resources. It is unlikely that GCF’s target of US$100 billion of finance by 2020 from a variety of sources (as agreed in Copenhagen), will be enough to meet the full cost of INDCs implementation, including low-emission climate-resilient development in developing countries. In addition, there is little point in pumping international money into climate-compatible development, if wider investment in recipient countries continues to support a ‘business as usual’ (BAU) trajectory. The final outcome text of the 2015 Financing for Development conference recognized, that funding from all sources – public and private, bilateral and multilateral, as well as alternative sources – will need to be increased for investment in many areas, including low-carbon and climate-resilient development[1].

Therefore, a standalone climate financing model to fund INDCs’ implementation may not be logical. Rather, countries need to strengthen its domestic financing instruments as well as engage private sectors. A clear and practical resourcing strategy to achieve these development ambitions is needed. One ideal approach for developing this resourcing strategy for INDCs implementation could be to map out the financial situation of countries, as well as detailed mapping of the financing situation in the priorities sectors of INDCs, both public and private:

  • Financial needs for growth and development– based on the macro and sector objectives, and focus on types and magnitudes of capital required over time. This should include estimates of CAPEX and OPEX.
  • Financing gaps and constraints – what current levels of capital, what are the limits to sources of existing capital sources such as regional block grants, federal grants or borrowing and what is the estimated financial gap for implementation of plans
  • Financing options – what public and private financial mechanisms are available for these plans, how much capital could they generate and what are the major risks?
  • Financing sources – for each mechanism, what sources are available and how much (by transaction and in total) can they reasonably supply? Which types and sources of finance are most suitable for the specific countries?

There are also issues of capacity gaps for managing the financing and implementation of INDCs. The development partners and in particular the UNFCCC needs to provide these supports to the parties to bridge up this gap.

Keshav C Das

Feb 9, 2016

[1] From para. 60 of the final text of the outcome document adopted at the Third International Conference on Financing for Development, Addis Ababa, 13–16 July 2015, and endorsed by the General Assembly in its resolution 69/313 of 27 July 2015

Picture source: UNFCCC

Aid Effectiveness- The Paradox

Image.Blog.SeptIn a fantastic news reporting on perennial flood problems of Assam; a north eastern state of India, the NDTV 24×7 news channel has reported today that since 1970, the Government of India has invested more than 2 Billion USD to manage the flood problems of Assam, but, even after 55 years of continuous investment, it is found that the problem is further aggravated. The successive waves of devastating floods in almost every year have virtually destroyed the economy of Assam, more particularly, the rural economy of the State.

Where has the money gone? The obvious answers to this questions could be- corruption, poor state of administration. But, I believe there is a necessity to diagnose the flow of this aid and its effectiveness . It is pertinent to highlight here that waste of aid fund is a universal phenomenon and it has been reported by the Organisation for Economic Co-operation and Development (OECD) in its recent report on Assessing Progress towards Effective Aid .
After several years of the endorsement of the Paris Declaration on Aid Effectiveness – a landmark agreement to improve the quality and, in turn, impact of aid – it is found that there have not been significant progresses in implementing the Paris Declaration and the subsequent Accra Agenda for Action. The donor’s money is not actually making any impact on solving the problems (including, poverty, health, food security etc.).

The reasons for this aid-ineffectiveness can be many; a few of those globally acknowledged impediments are provided below-

Ownership of development is about leadership at the political level. Unfortunately, such political leadership and accountability is grossly missing at various level, while planning, resourcing and implementing development programmes. There is also disconnect between strategies and budget allocations and very often aid decisions are politically motivated.

In many instances, civil society (non-state actors) is not part of the planning and implementation process. Although, in some isolated cases, there are involvement of non-state actors in national development processes, challenges persist in providing an enabling environment for civil society in some partner countries. This situation creates mutual antagonistic relationship between state and non-statement actors, and eventually that hampers on aid and development.

The gap between policy and practice in promoting demand-driven capacity development is also a challenge. There is no systemic capacity development efforts, which could ensure efficient management of the fund and programmes.
Alignment – one of the five principles of the Paris Declaration on Aid Effectiveness – refers to the provision of aid by donors in ways that respond to partner countries’ development priorities, supporting and using partner countries’ own systems and institutions. The Accra Agenda for Action placed greater emphasis on the systematic use of country systems by donors and the provision of support to partner countries in strengthening these systems. Unfortunately, most of the development programmes are disconnected with national development priorities and programmes which are created as ‘Individual Island’.

Donors are not systematically making greater use of country systems in countries where these systems are more reliable. This also includes fiduciary risks, public finance management etc. Reasons for donors’ limited use of country systems are more political than technical and include fear of financial misuse and lack of faith in partner country systems. This arrangement again creates mis-trust between donors and recipients.
Another key challenge of aid is that most aids are ‘technical co-operation heavy’ and more than 30-40% funds go into the staffs cost, administrative and other cost of the development partners. That means, it reality only less than 60% aid fund is available for actual works.

In few cases, it is found that there are very little coordination among donors. The Paris Declaration on Aid Effectiveness recognised that the multitude of donor approaches to providing and managing aid could result in unnecessary duplication of efforts and a greater burden on partner countries that have to deal with a wide range of policies and procedures. The Accra Agenda for Action went further by committing donors and developing countries to work together to reduce aid fragmentation both within and across developing countries. Unfortunately, this has not been practiced religiously.

Indeed, there are also issues related to aid transparency, predictability, and Donors need to commit to improve the availability of information on aid flows to support medium-term planning and increase the transparency around conditions attached to aid. However, recording aid more accurately and comprehensively in partner country budgets and public accounts has proven to be a greater challenge. With respect to aid predictability, most donors require to address structural constraints in their own planning and budgeting systems in order for them to be able to provide reliable indications of forward expenditure.

Lastly, we also need high quality results-oriented frameworks to put in place for efficient programme implementation. We also need to improve on quality of data, with SDG-related statistics and frameworks. There is also an urgent need for establishing of aid effectiveness targets for both partner countries and individual donors and broad-based dialogue to assess progress towards these targets are critical elements for effective mutual accountability.

Keshav C Das
September 15, 2015