Understand sources and flows of finance relevant to the land-use sector to inform identification of major funding gaps and resource mobilisation priorities for implementing the National REDD+ Strategy
Cambodia’s National REDD+ Strategy 2017-2026 (NRS) aims to contribute to national and global climate change mitigation by improving management of the country’s natural resources, particularly forest lands. The Action and Investment Plan for implementation of the National REDD+ Strategy (AIP-NRS) seeks to mobilise financial resources for the strategy’s proposed activities.
Understanding sources and flows of finance relevant to the land-use sector is key to identifying major funding gaps and prioritising strategies for mobilising resources. For this study, the United Nations Development Programme (UNDP) and the EU REDD Facility supported the Royal Government of Cambodia (RGC) to analyse financial flows relevant to land use in the country. AIP-NRS objectives were considered and insights provided on other sectors relevant to drivers of deforestation and forest degradation in the country. This analysis applied the land-use finance mapping approach developed by the EU REDD Facility and Climate Policy Initiative to identify and track financial resources that affect forests and land use.
The analysis answered the following questions:
- How much revenue does Cambodia collect from land-related activities? Which domestic instruments could be mobilised to support AIP-NRS implementation?
The study reviewed public revenue generated from land-use activities, and relevant funds that could support implementation of the AIP-NRS.
- What are current levels of public expenditure on land-use activities in Cambodia and to what extent is that expenditure contributing to REDD+ objectives?
The study quantified and analysed public expenditure from domestic and international sources that contributed to the land-use sector in 2018. It assessed the alignment of this expenditure with the NRS objectives, and opportunities for aligning potential unsustainable investment with those objectives.
- What is the estimated amount of private investment in forest-risk commodities in Cambodia?
The study provided a qualitative analysis of private sector investment in forest-risk commodities, with a specific focus on economic land concessions and approved private investment projects.
3.1 Stakeholder involvement
The REDD+ Taskforce, responsible for overall management of the REDD+ process and leading implementation of the national REDD+ strategy, was the main consultative body for this study. The Taskforce comprises representatives from seven ministries and the National Council for Sustainable Development. Stakeholder consultations were conducted intensively during the inception phase and the development of the land-use typology. These consultative processes obtained stakeholders’ input on the land-use sector classification and types of projects relevant to land-use expenditure. Their views supported the land-use definition. A workshop was organised to discuss and finalise the land-use typology. Draft results were then presented to key stakeholders and project partners for their input and validation at a final workshop. Partner consultations were limited by the impact of the COVID-19 crisis during the implementation of the study.
3.2 Typology development
Land-use finance in Cambodia refers to investments, mainly by the private sector and public sector (including ODA), in activities that directly and/or indirectly affect forest cover positively and/or negatively. Stakeholders discussed classifying land-use finance flows in green, grey and brown categories, eventually discarding the brown category. Reasons were that drivers of deforestation such as illegal deforestation and land encroachment/speculation are out of scope of the study as they are not projects with reported financing (loan, grants, and budget expenditures). In addition, despite various studies and the adoption of the NRS, there is still no clear national consensus on drivers of deforestation in Cambodia. It is a politically sensitive topic. A cautious approach was therefore taken for the definition of the land-use finance typology.
On that basis, Cambodian stakeholders agreed to classify land-use finance into two categories of financial flows:
- Green land-use finance refers to investments in activities that contribute directly or indirectly to protecting or growing forest cover, enhancing forest carbon stock, or reducing drivers of deforestation — and which are therefore potentially aligned with forest conservation and sustainable forest management, as expressed in the NRS objectives. It is important to note that ‘alignment with’ does not necessarily mean actual financial ‘contribution to’ the implementation of the AIP-NRS, as the scope of this definition goes beyond activities identified in the AIP-NRS. Due to the political sensitivity of drivers of deforestation in Cambodia, the scope of the NRS is limited to the forest sector. This study made a deliberate choice in broadening this scope to other sectors relevant to REDD+ in Cambodia, based on available studies.
- Grey land-use finance refers to any other land-use investments that have direct or indirect impacts on forest cover but whose net impact (positive or negative) on land use change is unknown. These activities are not aligned with the NRS objectives, but some of them could be if certain conditions were in place.
Cambodian stakeholders developed a detailed typology of land-use finance activities for the following sectors and themes that are relevant to land use: forestry, agriculture, infrastructure, livelihood development, and tourism. The typology was based on a literature review of national documents and consultations with stakeholders. It was then adjusted to the reality of land-use projects in Cambodia, during an analysis session with relevant stakeholders. A weighting approach was also designed to account for partial contributions of some activities to land-use objectives. The typology and more details on the methodology, data sources and limitations are available in the main report.
3.3 Data collection and analysis
Thanks to Cambodia’s experience with the implementation of the Climate Public Expenditure and Investment Review, identification of data sources was straightforward.
Recurrent budget data was provided by the Economy and Finance Ministry’s Department of Budget Formulation, and corresponds to planned figures. The analysis was based on the approved budget documents, as actual expenditure data disaggregated on a functional basis was not yet available due to ongoing public financial management reforms. Data obtained for programme-based budget ministries was broken down to levels of the sub-programmes and activities. This data was sufficiently detailed for tagging spending to land-use sectors. For the assessment, the data allowed tracking spending activities based on their functional classification by ministry. Data on Subnational Administration from the national budget was available at an aggregate level only, so it was only analysed qualitatively.
Domestic capital expenditure data (disbursed data from 2018) is captured in the Report on Chapter 21 Expenditure (Direct Investment) from the Ministry of Finance and broken down for investment projects by each ministry. For the quantitative assessment, the detailed analysis was conducted with disaggregation by ministry and sector.
International finance (disbursed data, 2018 were available from two sources: i) project disbursement data from ODA Database of the Council for the Development of Cambodia (CDC)/ Cambodia Rehabilitation and Development Board, and ii) project disbursements from the Ministry of Economy and Finance’s loan and grant data.
Detailed qualitative data, in particular on domestic projects, was hard to obtain.
Total public land-use spending in Cambodia in 2018 amounted to KHR 2,625 billion (about USD 656,25 million), which was 2.7% of the GDP, or around 11.8% of the estimated overall expenditure by the Government, development partners and nongovernmental organisations.
KHR 737 billion, about 28% of total public land-use spending in 2018, was aligned with the NRS objectives (as shown in green in Figure 1). This amount represents 0.7% of GDP. Development partners, especially bilateral partners, are important sources of funds for NRS-related activities.
Land-use finance identified as non-aligned with NRS objectives totalled KHR 1,888 billion, or USD 472 million, the bulk of which corresponded with investments in infrastructure and to a lesser extent agriculture. This study could not assess the implementation of relevant environmental impact assessment and safeguard measures related to potential adverse effects of these investments on forests. Nonetheless, the magnitude of these flows highlights the need for greater scrutiny of their direct and indirect impacts on land use and forests, and for the assessment of safeguard implementation and mainstreaming of REDD+ in all land-use sectors.
About 90% of land-use finance was disbursed via central Government channels. This suggests that systematic mainstreaming — supported by adequate screening criteria, incentives and other enabling conditions — could be implemented to mitigate the potential pressure of grey investments on forests. The AIP-NRS could guide such systematic mainstreaming.
Ministries responsible for physical infrastructure development received the largest share of the state budget during the past five years (2015–2019) — and in 2018 about 65% of land-use finance was dedicated to infrastructure investments. This reflects Cambodia’s development priorities of building and maintaining roads, bridges, irrigation systems and electricity distribution systems.
Much smaller shares of the total land-use finance supported other policy objectives, for example livelihood support (11%), small-scale agriculture (9%), and sustainable forest management / forest law and governance (12%). Clean energy, protected area management / biodiversity conservation, and sustainable forest production each received around 1%, while large-scale agriculture and ecotourism received just 0.2% and of 0.1%, respectively.
As with revenue collection, subnational administration has played a marginal role in channelling land-use finance. This is because the devolution of relevant technical functions to subnational levels had not yet taken place in 2018. This could challenge REDD+ implementation, which calls for more local participation.
The major challenge faced by this study was related to the typology development and classification of land-use finance based on alignment with REDD+ objectives. Discussions with various categories of stakeholders across land-use sectors revealed a lack of consensus on drivers of deforestation beyond the forest sector. While various studies have been conducted on the topic and Cambodia has been developing an effective forest monitoring system, the current scope of the National REDD+ Strategy is limited and does not encompass the reality of deforestation and degradation drivers in the country. Yet this study’s objective was to go beyond the forest sector to identify non-aligned expenditure. It was therefore challenging to develop a typology as stakeholders would not agree on alignment and would consider as politically unacceptable labelling certain Government priorities as brown or grey. As a result, the study takes a new and broader look at land-use challenges, but its acceptance and ownership by Government partners might remain limited. This experience highlights the importance of a strong national framework and consensus on drivers of deforestation, to be able to take a critical look at policy coherence and mainstreaming aspects.
As a result, a weighting approach was developed to take into account both positive and negative impact of controversial land-use activities on forests. That approach would need to be fine-tuned and developed in a more participatory way in the future.
Data quality and detail was also a challenge encountered during the study. The lack of qualitative information about domestic and international projects limited the potential to break down projects into different uses, or to assess in more detail their alignment with NRS objectives. Subnational budget data was not available at a sufficiently detailed level to be used in the study.
Finally, stakeholder engagement was facilitated by the existence of the REDD+ Task Force, which was considered the main counterpart for this study. As a result, other stakeholders such as donors or civil society were only marginally involved. Stakeholder consultation was greatly impacted by the COVID-19 situation that impeded the organisation of most intermediary workshops.