The World Bank has estimated that the total investment needs for a comprehensive response to Pakistan’s climate and development challenges between 2023 and 2030 amount to around $348 billion which is equal to 10.7 per cent of cumulative GDP for the same period.
This consists of $152bn for adaptation and resilience and $196bn for deep de-carbonisation, reveals the Country Climate and Development Report for Pakistan released by the World Bank at the COP27 in Sharm El-Sheikh on Wednesday.
The report warned that the combined risks from the intensification of climate change and environmental degradation, unless addressed, will further aggravate Pakistan’s economic fragility, and could ultimately reduce annual GDP by 18 to 20 per cent per year by 2050.
Between 6.5 and 9pc of GDP will likely be lost to climate change as increased floods and heatwaves reduce agriculture and livestock yields, destroy infrastructure, labour productivity, and undermine health. Additionally, water shortages in agriculture could reduce GDP by more than 4.6pc, and air pollution could impose a loss of 6.5pc of GDP per year, warns the report.
Calls on Islamabad to make its case for concessional international funds
A comprehensive climate-financing strategy will 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, greater concessional international finance will be essential. Pakistan can and should forcefully make its case for this, but donors may be more willing to offer sustained support if revenue leakage and governance issues are systematically addressed, the report says.
The government should prioritise interventions that simultaneously deliver development outcomes and climate benefits and sequence policy actions realistically, based on their overall impact and relative urgency. However, as the magnitude of the recent floods shows, the government may also be forced to evaluate some hard trade-offs between investing in climate adaptation and other development interventions.
Considering the scale of the shocks, Pakistan will need increased international support in order to build longer-term resilience or else its hard-won development gains and future aspirations could be jeopardised, the report says.
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.
Specifically, Pakistan could maintain its commitment to energy de-carbonisation and accelerate a comprehensive reform in the energy sector, including piloting the implementation of carbon pricing instruments. If fully implemented the combined revenue of these measures could result in around $10 billion per year, the World Bank report estimates.
This will clearly not be enough to address the identified priority transitions. As Pakistan is calling for additional international financing, the government is encouraged to explore the repurposing of subsidies in the energy, agriculture and water sectors and improving tax and tariff collection.
The report emphasised that repurposing of existing subsidies is necessary for growth and climate resilience, and to do this effectively, historical experience highlights the need for careful communication and phasing of reform efforts to ensure gradual process that has political and social acceptance, as well as the protection of poor households and farmers, especially during the transition.
The report called for making Pakistan’s cities more climate-resilient and livable which will enhance their competitiveness and lower emissions but this will require investment and improved management of urban services.
It says the way cities have developed and are managed also makes them highly vulnerable to climate disasters.
There is an urgent need to strengthen the institutional and revenue generation capacity of local governments for improving service provision and attracting private investment.
The report says Pakistan’s energy and transport sectors are highly polluting and a drain on the country’s foreign exchange reserves; transitioning to sustainable energy and transport is feasible and would contribute significantly to development and climate goals.