IMF Reports: Climate Change Costs Pakistan $2bn Annually

Pakistan is facing a double threat from climate change and public investment inefficiency, according to a report by the International Monetary Fund (IMF).

The report, titled ‘Pakistan: Technical Assistance Report–Public Investment Management Assessment–PIMA and Climate PIMA’, says that climate change has been costing Pakistan $2 billion annually since 2000 and affecting four million people every year.

The report cites the 2022 flash floods that killed 1,700 people and impacted 30 million people as an example of the devastating effects of climate change. It also says that 500 people die every year due to natural disasters and climate change.

The report projects that by 2050, Pakistan’s economy may suffer a 9% loss due to natural disasters. It stresses the need for climate-resilient infrastructure, given Pakistan’s vulnerability to climate risks.

The report also raises concerns about the affordability and effectiveness of Pakistan’s Public Sector Development Programme (PSDP), which is the main instrument for public investment in the country.

The report says that the total cost to complete the projects in the PSDP is Rs10.7 trillion, which is 14 times the allocated budget of Rs727 billion for 2022-23. It says that at the current annual PSDP budget and the addition of new projects, it would take 14 years to complete the existing approved projects.

The report criticizes the government for adding new projects worth Rs2.3 trillion in the last budget, without prioritizing the completion of ongoing projects. It also points out the lack of coordination and consistency between the Finance Division and the Planning Commission, which are responsible for preparing and overseeing the current and development budgets respectively.

The report suggests that the government should establish a more credible basis for the PSDP budget, by comparing the project costs with the realistic funding available in the medium term. It also recommends reviving the five-year planning in Pakistan, considering the limited fiscal space and the need for growth drivers.

The report notes that the current Vision 2025 document does not reflect the changes in the national and global landscape since its formulation. It also highlights the gaps in public investment management and the incomplete implementation of the reforms outlined in the Public Financial Management Act 2019 and the 2021 Manual for Development Projects.

The report calls for strengthening the institutions for public investment management to enhance the delivery of critical infrastructure services in Pakistan. It also urges the government to adhere to the debt and deficit ceilings, which have been consistently breached since 2012. The report says that public debt has exceeded the 60% ceiling since 2012, posing a risk to fiscal sustainability.

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