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Honduras has demonstrated how climate budget tagging can move from a reporting exercise to a practical tool for better budgeting, with tangible impacts on the country’s climate action and commitments (Nationally Determined Contributions, NDCs).
Climate budget tagging is often seen as a classification exercise. In practice, when well designed, it is a strategic tool. It helps governments answer key questions: Which programs support climate adaptation or mitigation? How are institutions contributing to NDCs? And how can spending data support transparency, prioritization, and access to climate finance? For Honduras—highly exposed to climate risks—these questions are critical. Better information on climate spending can improve resource allocation, strengthen accountability, align policies with climate commitments, and support engagement with development partners and investors.
After years of experience identifying climate-related spending, the country has taken an important step forward: strengthening its methodology, developing practical implementation guides aligned with national and international frameworks, and embedding the reform in a governance structure that brings together the Ministry of Finance (SEFIN) and the Ministry of Environment (SERNA).
This is more than a technical upgrade. It is the kind of institutional progress that can make climate-sensitive budgeting credible, repeatable, and operational. This progress has been formalized through an executive decree from the Council of Ministers,[1] which codifies the strengthened approach and signals a clear government commitment to integrating climate considerations into budgeting. This formal adoption of a strengthened climate budget tagging methodology, alongside operational guides to apply it across the budget cycle marks a shift from identifying climate-related spending ex post to embedding climate considerations in budget formulation, execution, validation, and reporting.
Since 2015, Honduras has had a methodology to identify budget allocations associated with climate change adaptation, mitigation, and climate-related disaster risk management. This early work helped build awareness and generate data, but it faced familiar challenges: limited precision, uneven application, and weak integration into the budget process.
The reform gained momentum in late 2025, when the country benefited from technical assistance focused on strengthening budget preparation, including climate tagging. With further support from the International Monetary Fund (IMF) and the Inter-American Development Bank (IDB), in April 2026, Honduras advanced from design to operationalization. A package of implementation materials aimed at making climate tagging functional for the 2027 budget cycle was developed. This work also supported a structural benchmark under Honduras’ IMF-supported program, underscoring the centrality of climate-responsive budgeting within broader fiscal reforms.
The reform’s core achievement is the strengthening of the tagging methodology and its translation into operational tools. The updated approach introduces a clearer distinction between climate purpose (principal or secondary) and type of incidence (mitigation, adaptation, mixed, or negative). This is a significant step forward, as many systems focus only on positive contributions.
The methodology also reduces subjectivity by standardizing the level at which tagging is applied across government activities and public investments. Rather than relying on discretionary percentages, it uses clearer classification criteria, while maintaining alignment with program-based budgeting.
Another important innovation is stronger policy alignment. The methodology links tagging to Honduras’ evolving climate framework, including the NDCs and the Green Taxonomy of Honduras (GTH). For mitigation activities, the taxonomy provides a science-based reference to identify sustainable economic activities, strengthening the connection between climate policy, finance, and budgeting.
Crucially, these advances have been translated into practical implementation guides and standardized forms, tailored to different types of institutions, including SOEs. This is often the missing piece in climate tagging reforms. Without clear instructions, examples, and templates, implementation becomes inconsistent. In Honduras, the materials are designed for non-specialists.
The strongest reforms are the ones that establish durable institutional arrangements. Climate tagging requires both budget authority and technical expertise. SEFIN brings budget processes and system integration; SERNA brings climate policy legitimacy and technical knowledge. The strengthened framework is supported by a governance structure that clearly engages both institutions, with defined roles in classification, validation, and oversight. This helps ensure methodological credibility, consistency, and long-term ownership.
The real test lies ahead. The 2027 budget will be the first full application of the strengthened methodology. This will require training, coordination, and iterative refinement. If implemented effectively, the reform will deliver more reliable data, stronger integration of climate considerations into budget decisions, and better information to support transparency and policy-making.
Across Latin America and the Caribbean, climate tagging systems vary in maturity. Many remain ad hoc, retrospective, or weakly institutionalized. Honduras is taking a different path—combining methodological rigor, operational tools, and governance arrangements. Its approach reflects emerging best practice: a system that is policy-aligned, operationally grounded, and institutionally embedded. The lesson from the Honduras approach is clear: climate budget tagging becomes transformative only when it is operationalized. User-oriented guidance matters, so do standardized tools and institutional roles.
This progress reflects sustained and well-coordinated technical support. The joint engagement of the IMF and the IDB ensured that methodological improvements and budget integration advanced in parallel. Within the IMF, the reform was supported by the Global Public Finance Partnership (GPFP), including a dedicated Honduras project. This support enabled continuous engagement and the development of implementation-focused outputs that go beyond diagnostics.
[1] PCM-10-2026, published in the Official Gazette on May 29, 2026.
