Pakistan had earlier requested $1 billion in climate resilience funding to address the growing impact of climate change. The requested funds aim to bolster climate adaptation projects, including infrastructure improvements to mitigate extreme weather events such as floods and droughts.

A technical delegation from the International Monetary Fund (IMF) has arrived in Islamabad to engage in discussions regarding climate financing and policy measures with Pakistani officials. According to reports, the four-member IMF team will collaborate with federal and provincial authorities to assess Pakistan’s progress on climate adaptation, green budgeting, and financial tracking mechanisms. The discussions, which will continue until February 28, are expected to shape the country’s climate funding strategies.

Pakistan finance minister Muhammad Aurangzeb had earlier stated that Pakistan anticipates receiving $1-1.5 billion in climate funding from the IMF as part of its broader climate resilience initiatives. One of the critical agenda items in the discussions is the introduction of a carbon levy in the federal budget for the fiscal year 2025-26. The IMF team is expected to provide recommendations on the levy’s implementation framework.

The delegation will also focus on issues such as climate-related subsidies, electric vehicle policies, and expanding green budgeting efforts. Pakistani officials will brief the IMF representatives on the government’s existing climate initiatives and future policy direction. The visit is seen as part of ongoing efforts to align Pakistan’s financial policies with international climate commitments, ensuring sustainable economic reforms in the face of mounting environmental challenges.

Additionally, the IMF has confirmed that its review mission will visit Pakistan in early March to negotiate the next tranche of the country’s $7 billion Extended Fund Facility (EFF). These discussions will also incorporate aspects of climate financing, as Pakistan has formally requested additional funds under the Resilience and Sustainability Facility (RSF) arrangement. IMF’s resident representative in Pakistan, Mahir Binici, confirmed that the technical delegation will remain engaged for at least three weeks, addressing both fiscal policy and climate-related financial planning.

Climate Resilience Loan Request

The IMF team will interact with key Pakistani ministries, including finance, planning, climate change, petroleum, and water resources, alongside agencies such as the Federal Board of Revenue (FBR) and disaster management authorities. The discussions aim to assess Pakistan’s compliance with global climate funding benchmarks and identify policy gaps that need to be addressed for securing long-term financing.

Pakistan had earlier requested $1 billion in climate resilience funding to address the growing impact of climate change. The requested funds aim to bolster climate adaptation projects, including infrastructure improvements to mitigate extreme weather events such as floods and droughts. In line with the IMF and World Bank’s policy advice, Pakistani authorities have already prepared documentation for the Climate-Related Public Investment Management Assessment (C-PIMA) to integrate climate considerations into national budgeting.

While Pakistan has met most structural benchmarks under the 39-month EFF program, it has fallen short on certain indicative targets due to fluctuating macroeconomic conditions. One outstanding benchmark involves the amendment of the Sovereign Wealth Fund (SWF), initially due by December 2024, though other governance and financial safeguard conditions have been met.

The IMF’s RSF program offers long-term financing with favourable terms, including a 30-year repayment period with a 10-year grace period. The funding is designed for nations implementing high-quality reforms to build resilience against climate-related disasters. In October 2023, Pakistan formally requested an additional $1.2 billion under the RSF, underscoring the urgent need to address its climate vulnerability.

According to the IMF, Pakistan’s climate crisis is accelerating at a rate significantly higher than the global average. The country faces increasing climate variability, reduced water availability, intensified droughts, and accelerated glacial melt. These environmental challenges are compounded by weak urban planning, inadequate infrastructure, and inefficient water resource management.

Climate Challenges and Economic Impact

Over the past three decades, Pakistan has incurred economic losses amounting to $29.3 billion due to climate-related disasters, equivalent to 11.1 per cent of its 2020 GDP. The catastrophic 2022 floods, which claimed 1,700 lives and displaced eight million people, resulted in an economic loss equivalent to 4.8 per cent of GDP. Reconstruction costs were estimated at 1.6 times the national development budget for the fiscal year 2023.

To mitigate such future disasters, the IMF has recommended that Pakistan invest at least 1 per cent of its GDP annually — approximately Rs 1.24 trillion — into climate resilience and adaptation measures. Research indicates that investing in climate-adaptive infrastructure could significantly reduce economic disruptions from natural disasters, allowing for a quicker and more stable recovery.

However, Pakistan’s ability to mobilize funds for climate adaptation is hindered by broader economic challenges. The country’s fiscal constraints, coupled with a declining share of human capital investments, have weakened overall growth potential. IMF experts have highlighted Pakistan’s lagging performance in education, healthcare, and social development, which continues to hinder its economic resilience.

As the technical discussions between the IMF and Pakistani authorities unfold, the outcomes will play a crucial role in shaping the country’s future climate policies and financial strategies. The negotiations are expected to determine the extent of climate financing support Pakistan can secure, as well as the structural reforms required to meet global sustainability commitments.

With the first policy review of the EFF scheduled for early March, Pakistan’s economic and environmental future hangs in the balance. The success of these negotiations will not only impact Pakistan’s ability to withstand climate shocks but also define its long-term path towards sustainable development.