• Finance Division asked to publish climate-related spending for FY23-24
• Fund says capacity constraints pose significant challenges to climate change agenda

ISLAMABAD: As Pakistan seeks continuous and extended international support at the global climate conference (COP28) in Dubai this week, the International Monetary Fund (IMF) has told the government that the budget for FY2024-25 should practically be a turning point for the planning mechanism and investment portfolios based on climate adaptation.

“There is a need to be transparent on climate-related actions that have budgetary implications to support policy making and climate financing,” said the IMF as part of technical advice to the government before it starts next year’s budget preparations to garner international support and attract climate-related financing.

A high-level delegation led by caretaker Prime Minister Anwaarul Haq Kakar is attending the Conference of Parties (COP28) beginning November 30. “Pakistan is all set to plead its case in COP28,” said the Ministry of Planning and Development on Sunday.

According to the ministry, it was “aligning the future of Pakistan with the blueprint for a sustainable future, presented by the Ministry of Climate Change and Environmental Coordination”.

Last week, caretaker Finance Minister Dr Shamshad Akhtar had at least two marathon sessions with multilateral and bilateral lenders as a precursor to the COP28 and made a pitch for additional international financial support, particularly those relating to ‘debt for nature and debt for social development swaps’ to help Pakistan meet climate finance targets.

The IMF asked the ministries of finance and planning — the two major leading budget-making stakeholders — “to improve transparency by presenting in budget documentation summary information on key aspects of the Public Sector Development Programme (PSDP) and the wider public investment programme” due to insufficient information on the implications of climate-related actions on the budget.

It said the Planning Commission should develop a proposal in concert with the Finance Division for approval by the Executive Commi­ttee of the National Economic Council (Ecnec) and an agreement on the approach should be reached by mid-2023 i.e. by the end of December for inclusion in the 2024-25 budget documentation.

“Advance the work on green budgeting, including budget tracking and publish information on climate-related costs to the budget,” the IMF said, asking the Finance Division to publish climate-related spending for FY2023-24, following budget tracking exercise.

The fund also asked the Ministry of Finance to build on the current tracking exercise in general to provide more guidance to line ministries in budget call circulars (normally issued every year in December or January) for FY24-25, and gradually extend tracking to revenue measures and extend green tracking system to all provinces, including through the support of controller general of accounts.

Fiscal risks under climate change scenarios

In the meanwhile, the economic adviser wing of the finance ministry must prepare and publish long-term fiscal sustainability analysis in the statement of fiscal risks under different climate change scenarios, and assess and publish information on discrete fiscal risks arising under these scenarios, the IMF said.

There is certain structural benchmark regarding climate public investment plans under the ongoing $3bn standby arrangement to be fulfilled by the authorities by the end of December, including cabinet approval for new public investment management assessment.

As part of the exercise, the IMF believed that the appraisal process for investment and projects should be further strengthened by December 2024 to include climate factors for which more specific guidance be developed with respect to key appraisal issues such as the valuation of greenhouse gas (GHG) emissions and climate impacts in order to ensure comparability across projects in the appraisal and selection stage.

Giving high priority to allocative efficiency improvement, the IMF has set December 2023 as the deadline for the application of comprehensive selection criteria to guide allocation of development budget funding that includes climate change.

“Among other factors, these could include impact on the government’s climate targets and goals and resilience,” it said and noted at the same time that capacity constraints posed a significant challenge to the implementation of Pakistan’s climate change agenda.

Therefore, the government should step up efforts immediately to train staff to strengthen the capacity of the Ministry of Climate Change, Planning Commission, and Climate Change Authority with the support of relevant development partners to oversee and coordinate investment projects targeting the achievement of National Climate Change Policy (NCCP) announced last year and National Determined Contributions (NDC) goals.

The fund also advised that entire budget formulation and approval process should adapt to climate change requirements.

In this regard, the summary information in budget papers should include the number, total value in the PSDP, total value to completion, and the average estimated years to completion for new, ongoing and all projects in the PSDP, using estimates of available funding from the medium term fiscal framework or multiyear development budget indicative ceilings.

“Additional information should summarise the number and value of climate-related projects, projects associated with major current issues, such as flood recovery, total financing sources, and major projects of public interest not included in the PSDP, such as those carried out under CPEC or by SOEs,” it said, adding the summary data should also include all PSDP projects carried out from all financing sources and should not be split.

Published in Dawn, November 27th, 2023