The World Bank (WB) has estimated that the total investment needed for a comprehensive response to Pakistan’s climate and development challenges between 2023 and 2030 amounts to around $348 billion, according to a report at the UN’s climate summit on Wednesday.
The estimated amount — equal to 10.7 per cent of cumulative Gross Domestic Product (GDP) for the same period — was evaluated in the ‘Country Climate and Development Report’ for Pakistan, which was presented at the climate change summit held in Sharm El Sheikh, Egypt.
This amount consists of $152bn for adaptation and resilience and $196bn for deep de-carbonisation.
The report warned that the combined risks from the intensification of climate change and environmental degradation, unless addressed, would further aggravate Pakistan’s economic fragility and could ultimately reduce the annual GDP by 18pc to 20pc per year by 2050.
Between 6.5pc and 9pc of the GDP would likely be lost to climate change as increased floods and heatwaves reduce agriculture and livestock yields, destroy infrastructure, decrease labour productivity, and undermine health.
Additionally, water shortages in agriculture could reduce the GDP by more than 4.6pc and air pollution could impose a loss of 6.5pc of the GDP per year, the report warns.
It went on that a comprehensive climate-financing strategy would need to be developed with higher domestic resource mobilisation, more accountable and impactful allocation of public spending, and higher levels of international climate finance.
Given the size of expected climate shocks, the report deemed greater concessional international finance essential.
While the country “could and should forcefully make its case for this”, the report also stated that donors may be more willing to offer sustained support if revenue leakage and governance issues were systematically addressed.
Targets of nationally determined contribution
The report further asked the government to prioritise interventions that simultaneously deliver development outcomes and climate benefits and sequence policy actions realistically, based on their overall impact and relative urgency.
It, however, added that as the magnitude of the recent floods showed, the government may also be forced to evaluate some hard trade-offs between investing in climate adaptation and other development interventions.
The National Action Plan proposed under the nationally determined contribution (NDC) ought to be developed and implemented, the report said.
It added that mainstreaming climate priorities into broader development plans would be a critical starting point.
Furthermore, climate and disaster risk screening and climate budgeting should be embedded within the public financial management system to improve the transparency and efficiency of public spending on climate actions.
A climate-resilient, low-carbon, and equitable development pathway would enable Pakistan to reach its NDC targets, the report emphasised.
Financing composition available over next decade not enough
According to the report, the heatwave and devastating floods of 2022 call for urgent climate action in Pakistan.
The level of damage sustained is clearly the result of intensifying climate change but it also highlighted the lack of investment in adaptation and the concentrated exposure of population and vulnerable assets in high-risk areas, the report noted.
It added that considering the scale of the shocks, Pakistan would need increased international support in order to build longer-term resilience or else its hard-won development gains and future aspirations could be jeopardised.
An illustrative assessment based on a retrospective review of the level of funding in recent years suggests that the current financing composition available over the next decade can be estimated to be around $39bn from public finance — including multilateral development banks financing — and $9bn from public-private partnerships for infrastructure projects.
However, the report deemed it to be not enough to address the identified priority transitions.
Possible measures to generate revenue
As Pakistan is calling for additional international financing, the report encouraged the government to explore the repurposing of subsidies in the energy, agriculture and water sectors along with improving tax and tariff collection.
This could be done while protecting the poorest and most vulnerable through well-targeted programmes and transfers, it suggested.
Specifically, it added that Pakistan could maintain its commitment to energy decarbonisation and accelerate comprehensive reform in the energy sector, including piloting the implementation of carbon pricing instruments.
The WB report estimated that if fully implemented, the combined revenue of these measures could result in around $10bn per year.
It also emphasised that the repurposing of existing subsidies was necessary for growth and climate resilience, and to do this effectively, the historical experience highlighted the need for careful communication and phasing of reform efforts.
This was to ensure a gradual process that has political and social acceptance, as well as the protection of poor households and farmers, especially during the transition.
The report’s key recommendations included phasing down the wheat support system, gradually removing the power tariff subsidy on electric tubewells, piloting new models for the solarisation of tubewells and incentivising water conservation to avoid an adverse impact on groundwater substantially.
Gradually phasing down the natural gas subsidy for chemical fertiliser production was also suggested.
Furthermore, it advised rechanneling fiscal savings from the reform of long-standing subsidies as smart subsidies to poorer farmers to promote resilient farming practices.
Adopting climate-smart practices, making Pakistan climate-resilient
Climate-smart and regenerative agricultural practices could reverse the decline in productivity, enhance the viability of the agri-food system, and reverse ecosystem degradation, the report said.
Key actions to be taken for the broad adoption of such practices included investing in research on context-specific methods for scaling up climate-smart and regenerative farming while improving coordination between research and dissemination.
Modernising extension services and improving access to credit, machinery, and technology were also recommended.
The report deemed it essential to invest in the development of sustainable value chains with a focus on access by smallholder farmers, potentially through participatory multi-stakeholder forums.
The report also called for making Pakistan’s cities more climate-resilient and livable which would enhance their competitiveness and lower emissions.
However, this would require investment and improved management of urban services, it noted.
It further said that the way cities — major contributors to greenhouse gases and have high levels of air pollution — have developed and are managed, also makes them highly vulnerable to climate disasters.
The report estimated that if Pakistan reduced air pollution to internationally established standards, premature deaths could decline by up to 53pc by 2030 and be fully eliminated by 2040.
This would significantly cut health costs while achieving climate mitigation benefits.
Reforming the power sector
The report stressed there was an urgent need to strengthen the institutional and revenue generation capacity of local governments for improving service provision and attracting private investment.
Cities need to prioritise actions that create sustainable revenue streams for investment in resilient infrastructure and improved delivery of basic municipal services, it said.
The report stated that Pakistan’s energy and transport sectors were highly polluting and a drain on the country’s foreign exchange reserves.
It added that transitioning to sustainable energy and transport was feasible and would contribute significantly to development and climate goals.
Imported fossil fuels provide 43pc of the country’s energy supply and cost the country $13bn annually.
Even though electricity costs are high, the country’s reliability and quality of supply are poor. There are also gaps in access to electricity and clean cooking fuel, particularly in rural areas.
According to the WB report, the needed reforms in the power sector include the setting of cost-reflective tariffs, improving the targeting of subsidies, reducing the cost of generation and addressing inefficiencies in distribution.
Pakistan would also need to improve demand-side efficiency, with special attention given to industry and transport considering their significance in terms of energy consumption and long-term decarbonisation.
Analysis showed that a sustainable energy transition and the application of a carbon tax would support higher growth, reduce emissions and pollution and, with the right policies, protect the poor.
The report recommended that Pakistan needed to address its human capital crisis to sustain economic progress and the transition to a green and resilient economy.
One of the most important priorities facing the country was to improve the population’s health status, particularly child stunting, which affects 40pc of the population.
It further added that an accelerated decline in the fertility rate would have similarly large benefits for both equitable growth and resilience.
Accelerating the fertility decline in Pakistan to reach replacement levels by 2035 — instead of the currently projected timeline of 2050 — would reduce its expected population in 2050 from 336 million to about 303m, the report pointed out.