Public Policies for Financing Sustainable Development Cielito F. Habito, Ph.D. Professor, Ateneo de Manila University Former Secretary of Socioeconomic Planning Republic of the Philippines December 11, 2002 Cielito F. Habito, Ph.D. Professor, Ateneo de Manila University Former Secretary of Socioeconomic Planning Republic of the Philippines December 11, 2002

International Development Institutions Government Civil Society Private Business Financing Sustainable Development: A Four-Way Partnership

 National level ÜResource pricing policy ÜTax & subsidy policy ÜPublic expenditure policy  International context Üglobal taxes ÜODA  National level ÜResource pricing policy ÜTax & subsidy policy ÜPublic expenditure policy  International context Üglobal taxes ÜODA Public Finance for Sustainable Development

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 Policy

 Environmental fees  Energy taxes  Pollution taxes  Perverse subsidies  Environmental fees  Energy taxes  Pollution taxes  Perverse subsidies Tax & 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 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

Goals 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 Discipline

Allocative 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 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 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 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 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 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) MTPDP/ PA21 MTPIP Plan Objectives linked with PAPs 3-yr Budget (MTEF) Annual Budget

Assessing Environmental Funds & Expenditures  Regular Budgetary Resources of Dept. of Environment & Natural Resources  Special Environment Funds/Accounts  Environment Guarantee Fund  Environmental Heroes Fund  Power Industry Environmental Trust Account (PIETA)  Regular Budgetary Resources of Dept. of Environment & Natural Resources  Special Environment Funds/Accounts  Environment Guarantee Fund  Environmental Heroes Fund  Power Industry Environmental Trust Account (PIETA)

Performance Triangle Analysis of Environmental Funds Environmental policy Public finance Effective fund mgt

International Policy

Aviation fuel tax Global Taxes Tobin tax

Global Environmental Facility Multilateral assistance Bilateral assistance Global Environmental Facility Multilateral assistance Bilateral assistance Official 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