ISLAMABAD: As part of a strengthened climate-focused budgeting framework, Pakistan’s Finance Division has introduced a new reporting mechanism—Form-III C—under the Budget Call Circular (BCC) for FY2025–26. This form is a key element of the government’s revised methodology to better track and integrate climate-related components within federal subsidies.
The initiative builds on Pakistan’s earlier efforts in climate budgeting, which began in FY2023–24 by categorizing federal spending into Adaptation, Mitigation, and Transition sectors. Initially limited to Running of Civil Government (RoCG) and Public Sector Development Programme (PSDP) expenditures, the scope now extends to grants and subsidies—major components of public financing.
Subsidies, which constitute a significant portion of the national budget, are broadly defined as government-provided financial support to either producers or consumers, aimed at supplementing incomes or reducing costs. Under the new policy, all subsidies from FY2025–26 onward will be assessed and tagged based on their climate relevance.
The initiative is in line with Pakistan’s commitments under the IMF’s Extended Fund Facility (EFF), where climate tagging is identified as a performance benchmark. According to the official notification, Principal Accounting Officers (PAOs) must complete and submit Form-III C by May 30, 2025. The Finance Division will offer technical support to ensure consistency and accuracy in reporting.
Climate Tagging Methodology
Form-III C requires departments to identify cost centres, classify sectors such as energy, transport, agriculture, and infrastructure, and describe the nature and purpose of each subsidy. Based on climate relevance, subsidies will be tagged as:
- Adaptation Subsidies: Focused on enhancing resilience through initiatives like agriculture and livestock research, crop loan insurance, climate-resilient infrastructure, and smart energy systems (e.g., solar panels, green buildings).
- Mitigation Subsidies: Aimed at reducing emissions via clean energy technologies, energy conservation, hydropower development, green fiscal reforms, and mass transit systems.
Five-Tier Climate Impact Categories
Subsidies will be categorized into five levels based on their potential environmental impact:
- Category A – Directly Favorable: Explicitly benefit climate outcomes (e.g., EV subsidies, renewable energy).
- Category B – Indirectly Favorable: Not climate-targeted but environmentally supportive.
- Category C – Neutral or Not Assessed: Have minimal or indeterminate impact due to data or knowledge gaps.
- Category D – Mixed Impact: Contain both positive and negative elements.
- Category E – Potentially Unfavorable: Likely to harm the environment (e.g., subsidies that promote pollution-heavy practices).
Officials are encouraged to consult Form III-A in the BCC for detailed classification guidance.
This expanded climate tagging of subsidies aims to improve the transparency, accountability, and alignment of federal spending with Pakistan’s broader environmental and development goals.
