Financing trends in the Pacific

The Pacific region is facing considerable economic and social development challenges due to the increasing impact of climate change and geo-hazards. With limited human resources and existing social and economic challenges, Pacific island countries (PICs) are struggling to manage these impacts and are likely to see reversals in development gains made to date. The Australian Government research undertaken by the Department of Foreign Affairs and Trade’s Office of Development Effectiveness, has identified that countries can at times lose as much as half of their Gross Domestic Product during disaster events.

In response to this challenge, countries in the Pacific have been able to access significant levels of financing. For instance, over the last ten years US$1.1 billion has been accessed by PICs to address climate change. Whilst the focus has historically been on gaining ‘access’, more questions are being raised around the ‘effectiveness’ of this financing. This has shown that a large portion, about 86 percent of this funding, is project-focused, outside of budget allocation systems and generally targeted at ‘narrow’ adaptation measures. Moreover, risk management interventions often do not emerge as a priority and receive relatively low budget allocations across PICs i.e. between 4% and 10% of total development budget allocations. These trends highlight the need for changes in the way in which climate action is financed in the Pacific.

Development finance is climate finance

In response to these challenges, countries are increasingly focusing on their economic development and thus development financing as the vehicle for reducing vulnerabilities to climate change. For instance, Fiji’s Minister for Economy Aiyaz Sayed-Khaiyum has urged the international donor community to see climate financing as development financing in the context of achieving the Sustainable Development Goals. “You cannot separate the two. You cannot have a dichotomous approach and say no this sort of funding is only for climate finance and this one is for development finance,” said the Hon. Minister. This approach is akin to the treatment of risk as an integral part of development planning and financing; known as the ‘development first’ approach to managing risk which is gaining traction across the region. This focus on development is already embedded in regional frameworks, such as the Framework for Resilient Development in the Pacific which puts the management of climate change and disaster related risk squarely in the context of economic development.

There are several strategic advantages to taking a ‘development-first’ perspective to financing responses to climate change. First, development financing offers greater ‘access’ to financing sources as well as a more diverse range of financing instruments. Second, it provides greater incentives for countries and partners to deal with the root causes of vulnerability i.e. from ‘unchecked’ development, and thus allowing for a broader range of adaptation measures. Third, and perhaps most important of all, embedding climate adaptation into broader development allows for more programmatic approaches and thus the greater chances of sustainability.

Changing tides of financing

A number of countries and partners in the Pacific are already taking a ‘development-first’ approach to financing climate change responses in the region. For instance, in Fiji, local government across all four sub-divisions are ‘risk-informing’ their development submissions for domestic development budget. In Tonga, the Ministry of Finance has now included a requirement for development budget submissions to be screened for climate and disaster risk. In both cases, this has led to an increasing number of ‘climate-resilient’ development initiatives ranging from small-scale farmer access roads to urban township redevelopment schemes.

Furthermore, development partners are leveraging their development finance also as a vehicle for financing climate responses in the region. The Australia’s Climate Partnership has been set-up to more deliberately integrate climate change responses into its own bilateral and regional programming for infrastructure, education and health. In addition to this, the AU$2bn Australian Infrastructure Financing Facility for the Pacific is being designed to finance infrastructure in the Pacific to withstand the impacts of climate change and disasters. Australia’s support, through UNDP, is making a difference to people’s lives in some of the most challenging development contexts in the world.

Leveraging development financing for climate-resilient development

Targeting development-financing for more climate-resilient development will require:

1. Domestic budgets as leverage for other financing sources and instruments for more ‘risk-informed’ development
2. Reform of Public Finance Management systems
3. Greater accountability of development (finance) with a stronger focus on gender and marginalized groups
4. Governance reform at all levels.

UNDP, through the Governance for Resilience (Gov4Res) Project, will work with Pacific island governments to ‘risk-inform’ development financing and planning mechanisms so that countries can better ‘leverage’ development financing for climate-resilient development across national, sectoral and sub-national levels.

As one of our largest government contributors, Australia is a vital partner in UNDP’s mission to end extreme poverty, reduce inequality and achieve the goals of the 2030 Agenda for Sustainable Development.

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The Gov4Res Project is working across the Pacific region with the support of the Australian Government’s Department of Foreign Affairs and Trade, the Korea International Cooperation Agency, the New Zealand’s Ministry of Foreign Affairs and Trade, and the Swedish International Development Cooperation Agency.