Finding $20 billion annually

Published November 30, 2023
The writer is an expert on climate change and development.
The writer is an expert on climate change and development.

PAKISTAN is gearing up for active participation in the climate summit, scheduled to begin today in the UAE. While raising the flag for global climate justice in negotiations, the government is planning to use more than two dozen events at its national pavilion to showcase how Pakistan is actually striving for climate resilience, province by province, sector by sector, and project by project.

Each case study will show, in many different ways, that Pakistan is not just a victim, but also a hero and a survivor, struggling to implement reforms and climate-smart policies as well as muster its limited resources to tackle the exacerbating climate challenge.

What are the strategic objectives of this high-level engagement? What is Pakistan’s ask from the global community, given that the experience of attracting international finance has historically been less than successful? At the last Conference of the Parties in Sharm el-Sheikh in Egypt, Pakistan had showcased its widespread losses caused by the 2022 floods.

This was immediately followed by a donor conference in Geneva in January 2023 to seek international assistance based on the Resilient Recovery, Rehabilitation, and Reconstruction Framework. Results have not matched expectations. What is our learning from this experience, and have we begun to think about Plan B to meet our climate expenditures?

There is growing consensus amongst senior policymakers that while Pakistan needs to improve its access to international climate finance and strengthen its pipeline of bankable projects, global climate finance windows simply cannot meet our growing needs.

There is an evolving understanding that no global financial fund, including the anticipated Loss & Damage fund, will have resources anywhere close to meeting the climate investments needed in Pakistan and estimated by the World Bank to be five per cent of the country’s GDP, or $20 billion annually. It is an intimidating figure, but arguably manageable particularly since it is an existential and national security threat.

Senior policymakers unfailingly underline the preference for grants and concessional lending. They, however, also understand that this is neither predictable nor significant nor adequate for the country’s immediate fiscal requirements. This leaves Pakistan with no option but to mobilise domestic resources, in spite of its extremely narrow fiscal space.

In fact, climate economists argue that increasing investments in climate adaptation will help expand the fiscal space needed for accelerated and sustained economic growth.

There is growing consensus that global climate finance windows cannot meet our needs.

The last floods inflicted a loss of $30bn. This amount was more than the total disbursement by all UNFCCC funds since their inception: the Global Environment Facility (1991), the Adaptation Fund (2001) and the Green Climate Fund (2014). According to some estimates, they have collectively disbursed about $22bn globally.

Pakistan has accessed less than $1bn from all these three funds in the last 30 years. We are not attending the climate summit expecting that the world will extend large sums annually, even if we consider ourselves as the most deserving climate victim. Most importantly, Pakistan’s absorptive capacity will not match this need for annual investment.

It is important to underline that allocations by climate funds are based on a project’s merit and alignment with their objectives, and not on any country’s specific needs or requests.

Clearly, as our needs far exceed our presently available external finances, Pakistan’s best practical option is to weave climate considerations into ongoing and future projects and mobilise domestic public and private sector resources, rather than ignoring reforms for climate-smart development.

Pakistan will, therefore, need to seek at the COP28 international partnerships two intertwined objectives: i) enhancing our ability to handle sustained investments over longer periods of time, which are necessary to absorb climate shocks and climate finances, and ii) undertaking a sustained reform agenda to augment our capacity to domestically generate $20bn annually for our climate expenditures.

Where is the fiscal space for generating these resources? The reality is that an almost exclusive preoccupation with macroeconomic stability and accompanying IMF conditionalities has distracted the decision-makers from the reforms necessary for climate adaptation.

The focus has been almost entirely on increasing revenue and reducing subsidies on oil and gas. A thin technical capacity has not allowed the government to prioritise reducing spending on maladaptation and government inefficiencies, ie, its bloated size, functional duplications, stranded assets (other than state-owned enterprises), and carbon taxes in high-polluting industries that will face border tax in future from the European Union (Pakistan’s important trading partner).

In the realm of adaptation, water is the currency of climate change. Water pricing is essential for the efficient use of resources and to generate revenue, as are the taxes on agricultural income.

An experiment some years ago in KP in which the revenue generated by tourism was used in the same department to improve the local tourism infrastructure provides an example whereby the revenue generated by the water and agriculture sectors can give a triple dividend: additional revenue, adaptation, and empowering local governments.

The contours of these reforms are already defined in our national and provincial climate and water policies as well as the Nationally Determined Contributions and National Adaptation Plan.

The last two are sovereign commitments to the UNFCCC, requiring periodic reports on their implementation. Adaptation, after all, is about the transformation of the water and agriculture sector for providing water and food security to the growing population.

They will spur private-sector investments, enhance economic productivity in otherwise slumbering sectors and create jobs, start-ups, technology and fintech entrepreneurs.

Finally, climate-risk profiling and climate-proofing the Public Sector Development Programme will increase the fiscal space for climate expenditure. Budget-tagging all climate expenditures will show where we stand domestically as well as attract foreign direct investment.

The key to increasing fiscal space and resilience simultaneously lies in the announcement of provincial National Finance Commission awards for increased spending at district levels. This step is also necessary to build up our absorptive capacity and spend where we should.

The World Bank typically ring-fences 1pc of every project’s budget for environmental and social aspects. Can Pakistan also ring-fence, in order to tackle the impact of climate change, its almost 1,300 approved projects that have an estimated throw-forward of Rs15 trillion? This will help create additional fiscal space for investments in climate resilience rather than leaving it to chance when it comes to international finance.

The writer is an expert on climate change and development.

Published in Dawn, November 30th, 2023

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