Finance Ministries in MENA can take climate action to the next level

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The lake of Dayat Awa in Morocco is receding as a result of global warming and drought.
The lake of Dayat Awa in Morocco is receding as a result of global warming and drought. (Photo credit: Ali Chahin/ Shutterstock)

Perhaps no problem requires a whole-of-government approach more than climate change.  Every part of society and the economy is affected by climate change, and, in turn, climate change is affected by every government action. A whole-of-government approach offers a comprehensive way to ensure that all levers are moving toward a climate solution.

Ministries of energy, environment, transport, and agriculture are those most often held accountable for climate change action or the lack thereof. But really, we are missing the inclusion of one key ministry into accountability for climate change within country systems – finance. Finance ministers are key because they channel resources into climate action. They are responsible for budget preparation and implementation, proposing incentives and policy reforms, promoting green public investments, and other tasks.  

Ministries of finance are also the key to implementing Nationally Determined Contributions (NDCs), a commitment made by countries to cut carbon emissions, which requires cooperation of all sectors,  political will, and leadership. A deep commitment from ministries of finance across the globe is a must if the ambitions of the Paris Agreement, NDCs, and the SDGs are to be achieved.  

In recognition of the important and transformative role that finance ministries can play, the Coalition of Finance Ministers for Climate Action was formed in 2018,  when 39 countries came together to boost their collective engagement on climate action. The coalition includes 73 Member countries representing over 35% of global carbon emissions and 65% of global GDP (2020) and is tasked with helping countries transition to low-carbon and resilient environments. Members of the Coalition sign on to the 'Helsinki Principles' (HP), a set of six non-binding principles that promote national climate action, especially through fiscal policy and the use of public finance.  

We are encouraged that in the last six months, four countries from the MENA region have joined the Coalition: Egypt, Morocco, Bahrain and very recently Iraq.  However, MENA is still the least represented region in the Coalition.  

So how exactly can finance ministries take part in climate action? Let us outline some of the key areas where they can play a role and methods to promote legislation to contribute to national commitments: 

  1. Public resources: Because finance ministries play a crucial role in the allocation of public resources, they can ensure alignment with climate action and policies and programs required to achieve the country’s national climate commitments. They can guide the resource allocation through effective budgeting as they allow countries to assess the percentage of GDP spending on climate change and the sources of this spending.  

  2. Fiscal incentives: Finance ministries can promote the alignment of fiscal incentives with national climate commitments, including the incorporation of climate considerations in post-COVID-19 economic stimulus packages.  

  3. Policy reforms: Finance ministries can promote reforms to remove environmentally damaging incentives (e.g., fuel subsidies) and introduce carbon pricing, which can positively influence private sector and consumer behavior. This can also contribute to an influx in investments towards green technology research and development.  

  4. New investment tools: Finance ministries can introduce new tools such as green bonds to finance new and existing projects that offer climate change and environmental benefits. 

  5. Public procurement: Finance ministries can oversee procurement reforms and functions, which offer a myriad of opportunities to promote climate-friendly technology, goods, and services. From equipping schools to building transportation systems to stationary supplies, the scale of governments’ collective procurement spending makes it one of the most powerful policy instruments for stimulating innovation and adoption of climate-friendly goods, services, and works. 

  6. Public-private partnerships: Finance ministries can propose legislation requiring that public investments and public-private partnerships follow environmental standards and that risks related to climate change, disasters and environmental impact are assessed. 

It is important that ministries of finance in the MENA region participate in these global discussions and are up to date on the roles that ministries, Central Banks, and other government institutions can take,  and are taking around the globe, to mainstream climate change in their economies. The crucial involvement of ministries of finance will further enable the World Bank to support countries through lending and technical assistance based on a whole-of-government approach to climate change action.

Authors

Jens Kromann Kristensen

Practice Manager, Governance, Middle East & North Africa, World Bank

Laura De Castro Zoratto

Senior Economist , Governance Global Practice

Nadir Mohammed

Regional Director for Equitable Growth, Finance and Institutions (EFI) in the Middle East and North Africa (MENA) region

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