ISLAMABAD: A technical mission from the International Monetary Fund (IMF) began discussions in Islamabad on Monday regarding Pakistan’s request for over $1 billion in additional financing for climate resilience. This will be followed by a policy review early next week to assess Pakistan’s progress under the ongoing $7 billion Extended Fund Facility (EFF).
The IMF team will primarily engage with key ministries, including planning, finance, climate change, petroleum, and water resources, as well as the Federal Board of Revenue, disaster management agencies, and provincial governments.
While not sharing specifics, IMF Resident Representative in Islamabad, Mahir Binici, confirmed that the engagements will take place over the next three weeks. He noted, “An IMF staff team is scheduled to visit Pakistan in early to mid-March to discuss the first review under Pakistan’s Extended Fund Facility-supported program and the authorities’ request for assistance through a Resilience and Sustainability Facility (RSF). In this regard, a technical team will be in Pakistan starting in late February to address technical issues related to a potential RSF arrangement.”
Official sources revealed that relevant authorities, particularly the ministries of planning and finance, have prepared documentation for the Climate-Related Public Investment Management Assessment (C-PIMA) for upcoming budgets, in line with IMF and World Bank policy advice.
Regarding the first biannual review of the 39-month EFF, sources indicated that Pakistan has met all but one of the structural benchmarks, although some indicative targets were missed due to changing domestic and international macroeconomic conditions. The only remaining benchmark relates to amendments required for the Sovereign Wealth Fund (SWF) by the end of December. Other sub-conditions on governance and financial safeguards have already been fulfilled.
The planning ministry has recently informed all stakeholders, including federal ministries and provinces, about the criteria and methodology for selecting projects in the future Public Sector Development Programme (PSDP). Starting with the upcoming budget, project selection will focus on strategic ongoing projects, those with over 80% completion and realistic estimates, high-priority infrastructure projects, pre-approved projects, foreign-funded projects with adequate rupee allocations, and projects in the least-developed districts. Climate-responsive and resilient projects will also be prioritized.
RSF funding is available to countries that implement high-quality reforms to build resilience against climate catastrophes. It is repayable over 30 years, with a 10-year grace period, and typically comes with more favorable terms than the EFF. In October 2024, Pakistan formally requested the IMF to top up its $7 billion EFF with an additional $1.2 billion under the RSF.
The IMF has previously recommended that Pakistan invest 1% of GDP annually (over Rs1.24 trillion in the current year) in climate resilience and adaptation reforms. This investment is aimed at preparing the country to combat repeated extreme weather events, particularly floods, while sustaining economic growth and addressing inequalities. Such investments in climate-adaptive infrastructure can reduce the negative impact of natural disasters by one-third and ensure quicker recovery.
The IMF also emphasized that improvements in public investment efficiency, guided by the C-PIMA Action Plan, would further enhance resilience, especially in the aftermath of a disaster. The C-PIMA framework has been adopted by the Pakistani government, which has also expressed its interest in securing additional financing from the IMF under the climate resilience window, while exploring international capital market options.
The IMF assessed that the additional investment needed for resilience would moderately increase Pakistan’s debt levels. If fiscal policies like consumption and income taxes were adjusted to address shocks, public debt could be reduced post-recovery. However, this approach may not be feasible after a major natural disaster.
The IMF stressed that further progress on fiscal consolidation and structural reforms is essential to ensure the fiscal space needed to manage such shocks.
Structural weaknesses in Pakistan’s economy have been identified by the IMF, with living standards declining over the decades. Despite a similar starting point in the early 1980s, Pakistanis’ incomes have stagnated and fallen behind regional peers, while poverty rates and social development indicators remain high. Weak human capital, low fiscal capacity, and a large state footprint have contributed to this stagnation.
These issues have been compounded by increasing vulnerability to climate change. Pakistan’s climate is warming at a rate significantly higher than the global average, resulting in more extreme weather events, including water scarcity, severe droughts, accelerated glacial melt, and intense monsoons, which cause floods, landslides, and rising sea levels affecting coastal settlements.
The economic consequences of climate-related disasters have already been significant, with losses totaling $29.3 billion between 1992 and 2021, equivalent to 11.1% of GDP. The 2022 floods, in particular, caused 1,700 deaths, displaced eight million people, and resulted in economic losses of 4.8% of GDP. Reconstruction needs are estimated to be 1.6 times the national development expenditure for FY23. The disaster was exacerbated by poor urban planning, infrastructure, and water resource management.
