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Poverty-Environment Action for the SDGs – Technical Assistance for Indonesia

Focuses on contributing to the ongoing Sustainable Development Finance Facility (SDFF) programme to deepen sustainable finance by integrating environment and poverty in budget processes, and broaden the dissemination of the tools and lessons learned from this project regionally and cross regionally.

Partner(s)

Poverty-Environment Action Technical Assistance in Indonesia is embedded within the Sustainable Development Finance Facility (SDFF) programme and will be implemented in partnership with Ministry of Finance, Ministry of Environment and Forestry, and Local Government(s).

Focus

Indonesia Poverty-Environment Action Technical Assistance supports the ongoing Sustainable Development Financing Framework in Indonesia that focuses on greening the process of policy decision making, budget planning and monitoring, greening government investments and accelerating mainstreaming of gender in the processes. The project aims to support selected government offices that have mandates and responsibilities for public financial management in the context of on-going Public Financial Management (PFM) and budget reforms.  Poverty-Environment Action Technical Assistance supports the Government of Indonesia to design green fiscal instruments (e.g. Green Sukuk); design national monitoring system for the Green Bond and Green Sukuk; strengthen budget tagging system for mitigation; develop gender mainstreaming tools; and develop national report of public expenditure on climate change.

Mainstreaming Context

Indonesia has made efforts in poverty alleviation in the past 10 years and has successfully reduced the percentage of population living in poverty from 17.75 per cent (2006) to 9.82 per cent (2018). However, there is a significant risk that governments’ inappropriate climate change responses adversely jeopardize poverty reduction efforts and gender equality, particularly for people in the rural and coastline areas. Achieving a strong and credible Public Financial Management (PFM) system has been a central governance agenda of the Indonesian government since the Asian financial crisis in the late 1990s. It has also been fundamental to the government’s poverty reduction efforts. Along with the demand of good governance, reforms of the public sector and the emergence of the concept of new public management (based on the three main universal principles of professionality, transparency, and accountability), the Indonesian government has made efforts to improve performance in the area of financial management and to develop a systematic approach in public sector budgeting.

The Sustainable Development Financing (SDF) project was established in 2014 as a joint collaboration between UNDP and UNEP’s Poverty–Environment Initiative (PEI), and UNDP’s Regional Strengthening Governance of Climate Finance to Benefit the Poor and Vulnerable. Building on the successes of the SDF, The Ministry of Finance has requested the development of a Green Economy and Climate Fiscal Framework which provides a mid-to-long-term national climate finance strategy and vision to achieve NDC targets and SDG goals. Furthermore, The Government of Indonesia has recently approached UNDP through the SDFF with a request for assistance to develop a blue bond/sukuk framework. The SDF is well placed to provide this support based on the lessons and experience from the Green Bond/Sukuk.

Main Activities
  • Support government budget processes to increasingly reflect gender-responsive climate change-related investments that will have a positive impact on poverty, transparency, and participation
  • Enhance accountability for gender responsive climate change related investments that have impact on poverty, transparency, and participation
  • Enhance implementation and accountability of innovative financing for sustainable development is enhanced
Expected Achievements

Poverty-Environment Action will support the development of a guideline on gender transformative climate change projects for sector climate-relevant pilot projects of the selected ministry(ies) with high impact to gender and poverty to better contribute towards gender transformative change and adaptive capacity of poor women and men.

The project will support the Ministry of Finance during the inception phase to determine a detail workplan with agreed outputs for the development of a Green Economy and Climate Fiscal Framework.

Poverty-Environment Action will also support strengthening the Climate Budget Tagging (CBT) system at the national level and enhance analysis of the data being generated to support future budget allocation processes with the objective to have a systematic link between budget allocations and planned climate change outcomes. This will be followed by development of methodological note for subnational CBT which will be used to standardize approaches and pilot the CBT in provincial and district level. The project will further pilot the CBT in at least four subnational governments (two provinces & two districts) and develop sub-national integrated climate expenditure analysis.

In identifying and developing innovative financial instruments to attract private capital to finance sustainable environment and marine actions, Poverty-Environment Action will support the Ministry of Finance in the Green Sukuk initiative through finalization of the annual allocation and impact report, capacity building and coordination with relevant ministries, monitoring of project impacts, and support for campaign advocacy activities.

The technical assistance project will also support the capacity building of the Ministry of Finance and related line ministries, as well as development of monitoring and reporting framework through a new impact measurement manual that will be used to roll out the new standard operating procedures for line ministries that receive the proceeds from the Green Bond/Green Sukuk.

The environmental sustainability and climate objectives will be mainstreamed and integrated in the national development planning, budgeting and monitoring systems at both national and subnational level which will also be contributing to poverty eradication. Further, the Government Green Bond/Green Sukuk Initiative will trigger more public and private investments towards environmental sustainability and climate objectives that have co-benefits to SDGs goals, including poverty eradication. 

Lessons Learned

The Blue Economy approach can drive the triple bottom line of development: advancing social well-being, protecting the environment, and growing the economy. The Government of Indonesia continues to demonstrate its commitment to the PFM reforms, although the timing and sequencing is continually evolving around the main pillars of the budget system to reflect the variable capacity constraints and changing political/policy and economic priorities. The demand as well as commitment from the government of Indonesia offer an excellent opportunity for Poverty-Environment Action to enhance government’s capacity to mainstreaming climate, environment, gender and poverty and into the public financial management system and promote quality investments.

The Way Forward

The project has been carefully designed to maximize the potential for the long-term sustainability of the interventions in strengthening integration of poverty and environment in PFM systems.  The SDFF’s approach is making changes in national systems which remain when administrations change and focuses on building capacity in national and provincial level to design and adopt mechanisms for mainstreaming that can be subsequently scaled up across provincial governments and Ministries. The project's Project Management Unit is embedded in the office of Ministry of Finance’s Fiscal Policy Agency to maintain close partnership with the government.