This study explores the extent to which governments in India, Nepal, and Sri Lanka prioritize public investment policies and climate change–related challenges in budgeting processes and how livelihood strategies related to climate change are executed through local government budgets. Data were collected in two stages: content analysis followed by semi-structured interviews and focus group discussions with a range of stakeholders. The findings show that all three countries have clear national priorities for investing in climate change. However, their national priorities are not integrated effectively with policies and programs at the local level.

This study outlines several issues to be addressed. First, weak capabilities are more concerning than availability of funds, making capacity building a priority. Second, a wider range of investments is needed, not just targeting physical capital but also mobilizing the available human, social, and knowledge capital. This effort would help to align public investments in climate change with community interests and livelihood strategies. Third, budgets and public financial management systems are important for the effective allocation of resources and delivery of priorities and investments to address climate change at the grassroots level. However, such allocations will only be made if (a) the fiscal space is available to do so, (b) relevant policies are elaborated, and (c) persons with the power to allocate those resources are interested in allocating them to climate policies.

Governments are urged to consider “climate-smart spending” as a policy area and to set up mechanisms to ensure that centrally allocated climate change budgets reach the grassroots level. Appropriate measures are needed to scrutinize the reporting, performance evaluation, and monitoring of climate change–related budgeting and investment. Finally, all three countries have potential to encourage private sector investment and promote public-private partnerships. Making climate change a part of the higher education curriculum is critical.

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This paper is a product of the PEFA Research Competition 2020: The Interplay of Climate Change and Public Financial Management. The PEFA Research Paper Series provides open access to PEFA-sponsored research to disseminate quickly knowledge that contributes to ongoing discussions about public financial management (PFM) around the world. The broader objectives of the PEFA Research Competition are to contribute to addressing gaps in knowledge on fiscal management, how to improve PFM systems, and the practical implementation of PFM reform. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in the papers are entirely those of the authors. They do not necessarily represent the views of the PEFA Program or those of the PEFA partners.