Is Nepal on track to attract climate finance to meet the challenge?

Published On: September 15, 2022 07:09 AM NPT By: SHREE RAM SUBEDI

KATHMANDU, Sept 14: Endorsed by the cabinet in October 2021, Nepal's national adaptation plan that covers the period of 2021 to 2050 has identified various adaptation programs to be implemented under three phases--immediate, mid-term and long term.

The plan refers to the priority of Nepal's Climate Change Policy 2076 BS, which has identified 64 climate change adaptation programs spreading in 8 sectoral and 4 inter-sectoral areas. Nepal would need a total of 47.4 billion US Dollar until 2050 to implement these programmes. Of the total need, Nepal can barely manage 1.5 Billion US Dollar from its internal sources while a whopping 45.9 billion US Dollar has to be attracted through external sources. Within this projection, Nepal would need climate finance to the tune of 26.4 billion until 2030, which means a 2.1 billion US Dollar every year.

It is clear that there is a huge gap in terms of the need and financial resources. One of the most vulnerable countries in terms of climate change in the world, Nepal warrants a great deal of attention in managing vulnerabilities and to ensure the development goals are sufficiently resilient to withstand environmental shocks that the future may bring. 

With the acknowledgement that climate change is a cross-cutting issue, Nepal's current budget has allocated 5.9 per cent of the total budget for projects that are highly related to climate change while another 28 percent is allocated for programs that are relevant to climate issues. This brings a total of over 33 percent of Nepal's total annual budget on climate headings.

However, Nepal's current budgetary need is highly dependent on external and internal loans.  Out of the total budgetary need of Rs 1,793.83 billion for the current Fiscal Year 2022-23, the government aims to manage Rs 55.46 billion in foreign grants, a 3 percent of the total budget.

With a total of Rs 240.11 billion revenue estimate, there is a budget deficit of Rs 497.26 billion for the current FY. To meet this gap, the government plans to take Rs 242.26 Billion in terms of foreign loans while Rs 256 billion will be raised through domestic loans.

This again highlights the paucity of financial sources to meet Nepal's budgetary and development needs.

In this context, Nepal faces challenges to manage climate finance, which are largely related to adaptation. With the increasing trend of climate-induced disasters, Nepal loses a record number of lives and property annually. The government has been failing to provide socio-economic support to its people in the aftermath of disasters. For instance, the tragedy that affected the people of Melamchi Valley still awaits support for the damage caused by the unprecedented flood last year. Similarly, the situation can be accounted for in other parts of countries as well. 

Also, there is a need to mainstream adaptation in development finance channeled through international aid, be it through bilateral assistance or Multilateral Development Banks.  The good news is that they have increased their support to promote green and climate resilient development, and mitigate the challenge posed by climate change in Nepal in recent years. However, there are very few projects clearly dedicated to climate change adaptation funded by multilateral banks. Transparency has been a big issue in accounting climate finance.

A recent study done by Prakriti Resources Center relating to the development financed by the World Bank and Asian Development Bank showed that these banks are assisting only a  few dedicated climate change adaptation projects and their current adaptation financing strategy is mainly focused only on climate-proofing the sector projects supported by them. The World Bank and Asian Development Bank (ADB) are the largest multilateral development banks (MDBs) working in Nepal.  The study has analyzed how MDBs are aligning their finance portfolios in Nepal with the country’s climate change adaptation goals.

Also, the study found that the Climate Risk Assessment is only conducted at the project development phase, and that too happening at the headquarters level. The study highlights the low level of engagement in grassroots level risk assessment by these country teams and line ministries.

Prabin Man Singh, co-author of the study, laments that these banks are not taking the government's climate vulnerability assessment into account but are performing their own assessment instead to support the national country strategy and action plan. "This clearly suggests a low level of trust among the stakeholders,” said Singh. 

The study stressed the need for an agile approach from these multilateral development banks and better alignment of their finance portfolios in Nepal with the country’s climate change adaptation goals.

"The engagement of MDBs in the formulation process of national plans on climate change is relatively weak given the important role of MDBs in terms of integrating climate concerns in the national plans through projects," the study findings said.

The study emphasizes that these multilateral banks "Country Partnership Strategy" to be updated to contribute to the recent policy priorities on climate change adopted by the government of Nepal. 

"Nepal needs to invest substantially to build the country’s adaptive capacity to climate change and address the adaptation financing deficit. Aligning the climate priorities of the ADB and the World Bank can help bring in efficiency in climate financing,” it said.

Thanks to the increased knowledge products made by these banks on Climate Risk Assessment, awareness has increased in the policy domain about the importance and possibility of addressing climate risks in the project formulation process. 

"These knowledge products on conducting climate risk assessment across different sectors, can be a valuable resource for designing climate projects as well as informing sector projects for climate risk resilience," the study said, in its findings.

The MDBs have also used climate risk assessment tools to estimate additional financing requirements in development projects to implement identified adaptation actions to minimize climate risks to the project, it said. 'Such an approach provides a more accurate estimation of the additional adaptation financing requirement in the development projects.'

Before COP27, which is slated to be held in Egypt in November, Nepal is finalizing a climate finance strategy and action plan. Government officials reasoned that the plan would help to garner support for Nepal's fight against climate change.

"The proposed strategy document clearly prioritizes Nepal's needs and has laid emphasis on grants rather than loans," says Pem Narayan Kandel, secretary at the ministry of Forest and Environment. 

In the front of climate change mitigation, Nepal is seeking support for clean energy solutions, sustainable forest and waste management, environment and climate friendly cities.  In adaptation and resilience, Nepal is seeking support in addressing climate induced disasters such as flooding, landslides, inundations, forest fire and glacier retreat. Nepali highly food insecure and agriculture dependent economy, Nepal is seeking climate resilient agriculture and is seeking support for the same. 

Raju Pandit Chhetri, an expert on Climate Change issues, suggests the multilateral development banks to reflect and acknowledge Nepal's priorities. 

“WB and ADB are strong development partners of Nepal. Still, while assisting in climate actions, they should fully acknowledge the national commitment demonstrated through the Nationally Determined Contributions (NDC) and the National Adaptation Plan (NAP),” Chhetri said.

While Nepal is entitled to receive climate finance in grant, there is growing concern that the support is provided in soft loan. Climate Change activists and experts argued that financial assistance in the name of climate resilience and adaptation should not burden Nepal, which is one of the highest risk countries in climate vulnerabilities. 

“The assistance must align with Nepal's priorities and be fully transparent about the support these banks provide. Most of the aid is currently muddled between development assistance and climate actions” he added. 

Nepal has been tracking international development assistance for a long time, but it also urgently needs to do the same for climate finance. Experts suggest that the government needs to differentiate between development aid and climate finance. 

Nepal is underutilizing the internationally available financial resources for climate actions – it needs to prepare better and strongly advocate internationally. "Adequately mapping the international climate finance and working with a long-term plan through bankable projects can help attract more funds for climate action in the country, suggests Chettri. 

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