Public Policies for Public Policies for Financing Sustainable Financing Sustainable

DevelopmentDevelopment

Cielito F. Habito, Ph.D.Professor, Ateneo de Manila UniversityFormer Secretary of Socioeconomic Planning

Republic of the Philippines

December 11, 2002

Cielito F. Habito, Ph.D.Professor, Ateneo de Manila UniversityFormer Secretary of Socioeconomic Planning

Republic of the Philippines

December 11, 2002

International Development Institutions

International Development Institutions

GovernmentGovernment

Civil SocietyCivil Society

Private Business

Private Business

Financing Sustainable Development: A Four-Way

Partnership

Financing Sustainable Development: A Four-Way

Partnership

National level Resource pricing policy

Tax & subsidy policy

Public expenditure policy

International contextglobal taxes

ODA

National level Resource pricing policy

Tax & subsidy policy

Public expenditure policy

International contextglobal taxes

ODA

Public Finance for Sustainable DevelopmentPublic Finance for Sustainable Development

National Level Policies

National Level Policies

Management by prices vs. management by control

Actual cost pricing (e.g.timber resources, water)

Environmental funds

Management by prices vs. management by control

Actual cost pricing (e.g.timber resources, water)

Environmental funds

Resource Pricing PolicyResource Pricing Policy

Environmental fees

Energy taxes

Pollution taxes

Perverse subsidies

Environmental fees

Energy taxes

Pollution taxes

Perverse subsidies

Tax & Subsidy PolicyTax & Subsidy Policy

Never enough

Highly inadequate to meet all needs

Usually makes up a small proportion of total environmental resources

Never enough

Highly inadequate to meet all needs

Usually makes up a small proportion of total environmental resources

Public Expenditure PolicyPublic Expenditure Policy

Ensuring stability and sustainability in public expenditure program

Ensuring that the Budget funds activities that truly promote sustainable development

Ensuring that public expenditures by environmental agencies address fiscal, economic and social considerations integratively

Ensuring stability and sustainability in public expenditure program

Ensuring that the Budget funds activities that truly promote sustainable development

Ensuring that public expenditures by environmental agencies address fiscal, economic and social considerations integratively

Public Expenditures for Sustainable Development: Three Concerns

Public Expenditures for Sustainable Development: Three Concerns

Goals of Sound Public Expenditure ManagementGoals of Sound Public Expenditure Management

Aggregate Fiscal Discipline (spending within affordable limits)

Allocative Efficiency (spending on the right things)

Operational Efficiency (providing public services at reasonable quality and cost)

Aggregate Fiscal Discipline (spending within affordable limits)

Allocative Efficiency (spending on the right things)

Operational Efficiency (providing public services at reasonable quality and cost)

Limiting spending to total budget resources (domestic revenues plus a sustainable level of domestic and foreign borrowings)

Total budget is determined in the context of the medium term

Annual total budget increases are matched by revenue increases

Limiting spending to total budget resources (domestic revenues plus a sustainable level of domestic and foreign borrowings)

Total budget is determined in the context of the medium term

Annual total budget increases are matched by revenue increases

Aggregate Fiscal DisciplineAggregate Fiscal Discipline

Allocative EfficiencyAllocative Efficiency

Budget allocation based on

strategic priorities

effectiveness of programs

Reallocation is encouraged

from lesser to higher priorities

from less to more effective programs

Spending levels are set for each sector

Budget allocation based on

strategic priorities

effectiveness of programs

Reallocation is encouraged

from lesser to higher priorities

from less to more effective programs

Spending levels are set for each sector

Operational EfficiencyOperational Efficiency

Refers to the production of goods or delivery of services

Costs should be competitive with market prices

Cash limits on operating expenses

Managers have discretion in using resources in exchange for pre-specified outputs

Refers to the production of goods or delivery of services

Costs should be competitive with market prices

Cash limits on operating expenses

Managers have discretion in using resources in exchange for pre-specified outputs

Sound Public Expenditure Management: Key PrinciplesSound Public Expenditure Management: Key Principles

Transparency (ready access to relevant information)

Accountability (by whom, for what, to whom?)

Comprehensiveness (One Fund Concept to equalize marginal benefits of last Peso spent for each program)

Transparency (ready access to relevant information)

Accountability (by whom, for what, to whom?)

Comprehensiveness (One Fund Concept to equalize marginal benefits of last Peso spent for each program)

Government budgets prepared on annual basis

Prone to deviations in direction and priorities

Not adequately related to medium term development strategy/plan

Subject to arbitrary political forces

Government budgets prepared on annual basis

Prone to deviations in direction and priorities

Not adequately related to medium term development strategy/plan

Subject to arbitrary political forces

The Way We WereThe Way We Were

• Little regard for environmental sustainability in activities funded by the budget

• Lack of priority on environmental expenditures (low in hierarchy)

• Environmental expenditures derive greater funding from extra-budgetary sources

• Little regard for environmental sustainability in activities funded by the budget

• Lack of priority on environmental expenditures (low in hierarchy)

• Environmental expenditures derive greater funding from extra-budgetary sources

The Way We WereThe Way We Were

• Proliferation of earmarked special funds

• Disjoint (sometimes conflicting) activities

• Failure to tap complementarities and synergies among sectoral concerns (e.g. water supply and health);

• Inefficient operational mechanisms for budget implementation

• Proliferation of earmarked special funds

• Disjoint (sometimes conflicting) activities

• Failure to tap complementarities and synergies among sectoral concerns (e.g. water supply and health);

• Inefficient operational mechanisms for budget implementation

The Way We WereThe Way We Were

Multi-year budgeting framework tied to medium term public investment program

Environmental Assessment of the budget

Move towards integrative programs

Multi-year budgeting framework tied to medium term public investment program

Environmental Assessment of the budget

Move towards integrative programs

Now: Public Expenditures for Sustainable Development

Linking the Budget to the Plan (and to Agenda 21)

Linking the Budget to the Plan (and to Agenda 21)

MTPDP/

PA21

MTPDP/

PA21MTPIPMTPIP

Plan Objectives linked with PAPs

Plan Objectives linked with PAPs

3-yr Budge

t (MTEF

)

3-yr Budge

t (MTEF

)

Annual

Budget

Annual

Budget

Assessing Environmental Funds & Expenditures

Regular Budgetary Resources of Dept. of Environment & Natural Resources

Special Environment Funds/AccountsEnvironment Guarantee Fund

Environmental Heroes Fund

Power Industry Environmental Trust Account (PIETA)

Regular Budgetary Resources of Dept. of Environment & Natural Resources

Special Environment Funds/AccountsEnvironment Guarantee Fund

Environmental Heroes Fund

Power Industry Environmental Trust Account (PIETA)

Performance Triangle Analysis of Environmental Funds

Performance Triangle Analysis of Environmental Funds

•Environmental policy•Public finance•Effective fund mgt

International Policy

International Policy

•Aviation fuel tax•Aviation fuel tax

Global TaxesGlobal Taxes

•Tobin tax•Tobin tax

•Global Environmental Facility•Multilateral assistance•Bilateral assistance

•Global Environmental Facility•Multilateral assistance•Bilateral assistance

Official Development AssistanceOfficial Development Assistance

Concluding Points

Public resources not likely to be the largest component of financing for the environment

Sustainability enhanced by a tangible counterparting of resources (and efforts)

Challenge is how to leverage limited government resources for much larger private sector resources potentially available

Public resources not likely to be the largest component of financing for the environment

Sustainability enhanced by a tangible counterparting of resources (and efforts)

Challenge is how to leverage limited government resources for much larger private sector resources potentially available