SEA faces significant environmental challenges and vulnerabilities from the long-term rise in temperatures and increased frequency of extreme weather events. This makes it essential to integrate environmental dimensions into public budgets. Green budgeting helps integrate environmental considerations and risks into the budgetary process and decision making. This helps governments to enhance their understanding of the environmental impact of spending choices, improve resource allocation, advance both national and international sustainability commitments, and be better prepared to respond to extreme weather events. Green budgeting involves the use of special initiatives, processes and analytical tools with a view to promoting policies and investments that help achieve environmental goals and commitments.
Green budgeting is gaining momentum in SEA. In 2024, four out of eight SEA countries for which data are available implemented green budgeting practices (Figure 3.2). This includes countries with long-standing practices, such as Indonesia and the Philippines, both of which introduced green budgeting over a decade ago. The more recent adopters, Singapore and Thailand, have implemented such practices within the past five years. Brunei Darussalam and Lao PDR have plans to introduce green budgeting, while Cambodia and Malaysia are considering implementation. A similar trend has been observed among OECD Member countries, where the adoption of green budgeting accelerated in the early 2020s. In 2022, two-thirds of OECD countries (24 out of 36) had implemented green budgeting practices.
In SEA, the legal basis or authority for green budgeting is primarily based on administrative practices, such as budget circulars and guidelines, as well as specific legislation. Both approaches are applied by three out of four SEA countries implementing green budgeting (Table 3.4). Most OECD countries have also developed a green budgeting framework through administrative practices (21 out of 24). Most countries report on the implementation of green budgeting (SEA: 3 out of 4; OECD: 16 out of 24). Reporting formats vary, with some countries integrating green budgeting information into broader financial reports, while others issue standalone documents. In SEA, only the Philippines publishes a green budget statement, which details how fiscal decisions contribute to environmental objectives, alongside the draft budget.
The most common tools in both SEA countries and OECD countries for implementing green budgeting include environmental impact assessments, which ensure that all policy proposals take into account the possible environmental externalities (SEA: 3 out of 4; OECD: 18 out of 24) (Table 3.5). Another widely used approach is green budget tagging, which enables governments to estimate public spending in relation to environmental goals, but does not provide information on the actual impact of these expenditures (SEA: 3 out of 4; OECD: 13 out of 24). Integrating an environmental dimension into fiscal risk analysis remains an emerging practice among OECD countries (3 out of 24) but is practised by 3 out of 4 SEA countries. This practice can help assess the impact of risks associated with the long-term rise in temperatures and extreme weather events, as well as the effectiveness of mitigation policies, on public finances, including increases in disaster-related spending.
