Sustainable Budgeting Approach

• SBA provides a taxonomy for categorizing policies based on shared environmental and economic characteristics; a method to assess potential policy impact on economic, social, and environmental grounds for every policy category and individual country; and a tool to compare policy options against each other and aggregate net impacts across an entire budget (or a subset thereof).
• At a high level, SBA can help align fiscal policies with national and global objectives, maximize the impact of public spending, support sustainable financing mechanisms, and facilitate evidence-based decision-making.
• Key policy and analytical questions SBA can help address concern how fiscal policies can be optimized for promoting long-term growth, emissions reduction, and social equity simultaneously; the trade-offs between different policy options across relevant indicators and how to structure fiscal policies to balance competing national objectives; which policies can produce win-win outcomes and are aligned with international commitments; and which policies perform best relative to desired national outcomes in countries across the globe.
• Steps in adopting SBA include adopting a standardized SBA taxonomy for categorizing policies, identifying which economic, environmental, and social criteria are important, and fine-tuning the potential impacts of each policy category on the selected criteria. From there, an entire budget or trade-offs in decision-making can be analyzed.
• Strengths of SBA include that it is easy to use, evidence-based, and contextualized for each country. By tracking the overall environmental, development, or social characteristics of an entire budget it can help MoFs ascertain the degree to which line ministry spending proposals support national objectives, thus providing guidance for line ministries as well. It also systematically identifies new policy ideas by collating and reporting policy measures from many nations in unified and granular categories.
• Limitations include that the approach is static, with limited ability to account for interactions between policies, and relies heavily on the accuracy of policy descriptions provided by governments. It omits impacts such as those on health, education, and security, among others. In practice, SBA relies on strong political commitment to be successful.

A case study application is an effort by the Government of the Gabonese Republic in 2021–2022 to understand the overall “greenness” of the national budget and to introduce a semi-automated tool to allow the same process to be repeated every year. Currently, SBA implementation is being started in Lao PDR, Cambodia, Vietnam, El Salvador, and 12 other countries across Asia-Pacific, Africa, and Latin America and the Caribbean. Linking SBA to the operations of development finance institutions is being discussed with the Asian Development Bank and the Development Bank of Latin America and the Caribbean.

Future refinements may include more granular taxonomies, expanded impact assessments (e.g., health and security), integration with dynamic economic modeling, and automated policy analysis via machine learning.