IMF Delegation Begins Talks on Pakistan’s $1 Billion Climate Resilience Funding Request
ISLAMABAD: A technical delegation from the International Monetary Fund (IMF) has arrived in Islamabad to initiate discussions on Pakistan’s appeal for over $1 billion in additional financing aimed at bolstering climate resilience. These discussions, commencing today (Monday), will be followed by a policy review next week to evaluate Pakistan’s progress under the ongoing $7 billion Extended Fund Facility (EFF).
The visiting technical team will collaborate with various government departments, including the ministries of finance, planning, climate change, petroleum, and water resources. Other key stakeholders, such as the Federal Board of Revenue, disaster management agencies, and provincial administrations, will also be engaged in the discussions.
Although specific details were not disclosed, Mahir Binici, the IMF’s resident representative in Islamabad, confirmed that discussions would span over three weeks. “An IMF staff team is set to visit Pakistan from early to mid-March to conduct the first review under the Extended Fund Facility and discuss the authorities’ request for financial assistance through the Resilience and Sustainability Facility (RSF). As part of this, a technical team will be in Pakistan from late February to address relevant technical matters related to the RSF arrangement,” Binici stated.
Progress on Structural Benchmarks
Government sources reported that Pakistan has met all but one structural benchmark outlined in the ongoing EFF program, despite missing some indicative targets due to shifting economic conditions. The only pending benchmark involves amendments to the Sovereign Wealth Fund (SWF), initially due by December. However, governance reforms and financial safeguards for these entities have already been implemented.
Authorities, particularly the planning and finance ministries, have prepared documentation in line with the Climate-Related Public Investment Management Assessment (C-PIMA) for upcoming budgets. The Ministry of Planning has also briefed stakeholders, including federal and provincial authorities, on criteria for selecting future projects under the Public Sector Development Programme (PSDP).
Starting with the next budget cycle, project selection will prioritize strategic and core initiatives, those nearing completion with over 80% expenditure, high-impact infrastructure ventures, foreign-funded projects with adequate rupee allocations, and developmental projects in the 20 least-developed districts. Climate-adaptive and resilient projects will also receive focused attention.
Pakistan’s Climate Financing Needs
The RSF provides financial support to countries implementing high-quality reforms aimed at enhancing resilience to climate-related disasters. This funding is repayable over 30 years, with a 10-year grace period, and carries more favorable terms than the EFF. Pakistan formally requested an additional $1.2 billion under the RSF in October last year.
The IMF has advised Pakistan to invest at least 1% of its GDP annually—over Rs1.24 trillion based on current estimates—into climate resilience and adaptation efforts. Such investments are critical in mitigating the increasing frequency of extreme weather events, particularly floods, while sustaining economic growth and reducing inequalities.
According to IMF assessments, increasing climate-adaptive infrastructure investment by 1% of GDP would lessen the negative economic impact of natural disasters by approximately one-third, ensuring a faster and more complete recovery. Enhanced public investment efficiency, in line with C-PIMA guidelines, would further strengthen resilience, particularly in post-disaster scenarios.
Economic and Social Challenges
The IMF has highlighted that Pakistan’s economic growth and living standards have lagged behind regional counterparts over the past few decades. Weak human capital development, low fiscal capacity, excessive state intervention, and protections for certain industries have contributed to stagnation. While social indicators have improved recently, they remain below those of neighboring countries. Additionally, public investment in health and education as a percentage of GDP has steadily declined.
Pakistan is highly vulnerable to climate change, facing a warming rate significantly higher than the global average. This vulnerability increases the likelihood of severe droughts, glacial melt, erratic monsoons, floods, landslides, and rising sea levels, all of which threaten infrastructure and settlements.
The macroeconomic consequences of these climate challenges are already evident. Between 1992 and 2021, climate-related disasters resulted in economic losses totaling $29.3 billion—equivalent to 11.1% of Pakistan’s 2020 GDP—hindering development. More recently, the devastating 2022 floods caused 1,700 fatalities, displaced eight million people, increased the poverty rate by up to four percentage points, and inflicted economic losses equivalent to 4.8% of GDP. Reconstruction costs were estimated at 1.6 times the budgeted national development expenditure for FY23.
Pakistan’s exposure to climate risks has been exacerbated by inadequate urban planning, outdated infrastructure, and poor water resource management. The IMF has emphasized the urgency of fiscal reforms and sustainable investment strategies to mitigate these risks and ensure long-term economic stability.
Path Forward
As part of its long-term strategy, Pakistan is exploring additional climate financing options, including international capital markets. The IMF has acknowledged that increased investment in climate resilience will likely lead to moderately higher debt levels. However, with appropriate fiscal reforms, Pakistan can manage these challenges effectively, ensuring sustainable economic growth while mitigating climate-related vulnerabilities.
