In 2017, two global UN initiatives, UNDP-UN Environment Poverty-Environment Initiative (PEI) and UNDP Biodiversity Finance Initiative (BIOFIN), have joined with the State Agency for Environment Protection and Forestry under the Government of the Kyrgyz Republic and the Ministry of Finance of the Kyrgyz Republic to review environment financing policy and institutional frameworks, focusing on biodiversity conservation and climate change adaptation.

August 2017

Reviewing environmental financing policy and expenditure in the Kyrgyz Republic

Preliminary results

Ecosystem services – benefits people obtain from ecosystems. These include provisioning services such as food and water; regulating services such as regulation of floods, drought, land degradation and disease; supporting services such as soil formation and nutrient cycling; and cultural services such as recreational, spiritual, religious and other non-material benefits. [Millennium Ecosystem Assessment]

Natural capital – natural assets in their role of providing natural resource inputs and environmental services for economic production. It comprises natural resource stocks, land and ecosystems. All are considered essential to the long-term sustainability of development for their economic importance, as well as to mankind outside the economy and other living beings.

[OECD glossary of statistical terms]

Spending on biodiversity conservation is important because the Kyrgyz people depend on the environment and the various ‘goods’ and ‘services’ that nature gives us (also called ‘ecosystem services’). For example, bees and other insects pollinate our orchards and help to produce food. Mountain forests help to prevent flash floods and protect our infrastructure.

Taking into account the economic importance of nature, we sometimes call these goods and services ‘natural capital’. But human activity can degrade natural capital. Excessive or incorrect use of pesticides affects the ability of bees to do their job. Changes in land use may destroy forests. We need to make sure that we invest in proper maintenance and conservation of natural capital.

The joint PEI and BIOFIN endeavour has been designed exactly for this purpose: to improve our understanding of environment finance and how institutions and policies influence it. In 2018, BIOFIN will use the review findings to develop specific finance solutions for managing biodiversity.

UNDP–UN Environment Poverty-Environment Initiative

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Preliminary findings from the work carried out so far

Any figures on expenditure are incomplete as they cover a limited number of budget lines analysed so far and they may change in the final report.

Economic development is clearly linked with environment, biodiversity and climate change adaptation through the range of ecosystem services. However, although these bring significant benefits, including revenue to national and local budgets, we have not created a system for valuing what they are worth. As a result, we do not record the detrimental effect of activities on natural capital, and economic and social losses.

There are opportunities to improve the effectiveness of environmental spending by making sure that public expenditure on the environment is linked with clear results indicators and by addressing some of the subsidies. For example, agriculture and energy subsidies take a substantial share of public funds yet they may have a negative effect on the environment, biodiversity and climate change adaptation efforts (Figure 2).

The PIR will analyse fiscal, economic, legal, policy and institutional frameworks in the Kyrgyz Republic that support environment, biodiversity and climate change adaptation finance solutions. The PPEER will establish spending purposes and patterns for the environment, with a focus on biodiversity and climate change adaptation. Together with a finance needs assessment, the PIR and PPEER will inform development of a plan to cover the main biodiversity financing gaps (see Figure 1).

Figure 2: Comparison of some types of planned public expenditure in KR in 2017, % of the total republican budget

Expenditure onenvironment (less than 1%)

Expenditure on potentially harmful subsidies in different sectors (approximately 13%)

Other state budget expenditures

Figure 1: Work programme (2017-2018) for improved biodiversity finance

How much is spent on the environment, by whom and on what?

Policy and institutional reviewExpenditure reviewPEI and Biofin, 2017

How much should be spent, by whom and on what?

Finance needs assessmentBiofinEnd 2017-early 2018

How do we reduce the difference between what is needed and what is spent?

Finance plan and solutionsBiofin, 2018

Let’s implement some priority finance solutions!

Pilot implementationBiofin, end 2018

Policy and Institutional Review (PIR) and Public and Private Environmental Expenditure Review (PPEER)

UNDP–UN Environment Poverty-Environment Initiative

UNDP–UN Environment Poverty-Environment Initiative

Greater effort should be made to apply programme-based budgeting, because it justifies financing of measures included in budget programs and establishes performance indicators. As a result, the environmental budget will become more strategic. BIOFIN and PEI have supported the State Agency for Environment Protection and Forestry in developing budget programs, more clearly highlighting issues of environmental protection, biodiversity conservation and adaptation to climate change.

Coordination among ministries around the environment is often insufficient and without genuine intent to collaborate. Existing coordination mechanisms do not guarantee decisions are

adopted that balance the interests of different sectors with those of social development, guided by principles of Green Economy.

The State budget lines analysed so far suggest low levels of environmental expenditure compared with other categories (less than 1% of the state budget). The recent changes in budget legislation are expected to lead to even lower levels.

The effectiveness of environmental strategies is low because they sometimes do not present a vision and clear strategic priorities for the Kyrgyz Republic. Besides, often they are not linked clearly with financial commitments and even compete for scarce financial resources (Figure 3).

In the second half of 2017, we will concentrate on a detailed analysis of public and private expenditure, and on developing recommendations for improved policies and institutional frameworks. The work in 2018 will focus on preparing a finance plan and practical implementation of some solutions. This will be done on the basis of the two assessments presented in this brochure and other activities being carried out.

Next steps

Figure 3: Competing for scarce resources among environment strategies

Budget financing0.7 billion som per year (average 2013-2016)

Estimated minimal funding needs of strategies1.3 billion som per year

NBSAP (2014-20) – 1 076.7 m som or 154 m som/y

Priorities of the Kyrgyz Republic on wetlands conservation till 2023 and Action plan for 2013-2017 – 5467.9 m som 2013-17 or 1094 m som/ y

National programme on walnuts forest development (2013-25) – 803.5 m som or 62 m/ y

National programme on snow leopard conservation – budget not known

Average annual environmental budget0.7 billion som

Other achievements and related activities

These include:

• Collaborating with the business community around green labelling and certification schemes (2017 and 2018) • Reviewing the National Biodiversity Strategy and Action Plan (to be completed in 2018) • Discussions to start similar assessment on environmental expenditures on the province level in 2018 • Economic assessment of ecosystem services of the Chon-Kemin protected area. The assessment will serve as an input to

integrate the concept of ecosystem services in national legislation (2017) • Working with the Ministry of Finance to support the State Agency for Environment and Forestry to prepare a programme

budget (2017 and 2018) • Working with the Ministry of Finance to develop additions and amendments into the methodological documents on

programme budgeting to take into account poverty-environment and sustainable development aspects (2017 and 2018) • Capacity building of selected ministries and agencies on strategic planning and budgeting under the Training Center of the

Ministry of Finance, in collaboration with the Ministry of Economy (2017 and 2018) • Analysis of budget spending decision making authorities and responsibility of the State Agency for Environment Protection and

Forestry and analysis of environmental revenues (2017).

Who are we?

UNDP BIOFIN is a global partnership, working in 31 countries, to address the biodiversity finance challenge by enabling countries to identify the most suitable finance solutions to bridge biodiversity finance gaps. www.biodiversityfinance.net

The UNDP-UN Environment Poverty and Environment Initiative, working in 24 countries, supports country-led efforts to put pro-poor, pro-environment objectives into the heart of national development planning. www.unpei.org

Contact details: United Nations Development programme in the Kyrgyz Republic160 Chui Ave,720040 Bishkek, Kyrgyz Republic

PEI and Biofin work in the Kyrgyz Republic is supported by funding from the following:

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www.kg.undp.org

@undp.kg

@undp_kyrgyz_republic

UNDP–UN Environment Poverty-Environment Initiative