Climate-smart development

Pakistan aims to be among the top 10 economies in the world by the year 2047 and top 25 economies by 2025. The government’s Vision 2025 aspires for a ’competitive’ but ‘caring’ economy. But is the government on the right track?

In economic terms, Pakistan may be a middle-income country. Yet, its social development indicators as per the World Bank’s data are similar to those of the least developed countries. On top of that, climate change poses a serious risk to the economy, threatening revenue and cost streams, as extreme weather events cause massive losses to GDP almost every year. According to the Global Climate Risk Index 2016 released by German Watch, Pakistan is among the top ten countries most affected by climate change, having lost more than $2 billion.

While aiming to have a more productive, open and connected economy, Pakistan must respond to address climate change impacts. The entire economy needs to be climate ‘proofed’, to ensure that climatic impacts on the economy are minimised. This calls for a paradigm shift towards ‘sustained economic development’ – addressing climate change in each economic sector.

The need for climate action has been recognised, and addressed in various national planning documents, including Vision 2025 and the accompanying Medium-Term Development Plan (2010-2015), Framework for Economic Growth (2011) and National Strategy for Sustainable Development, as a core component to economic growth, poverty reduction and social development.

The Ministry of Climate Change can perform a pivotal role in harnessing ‘climate compatible and resilient’ economic development by helping address climate change. Unfortunately, this importance has not yet been rightly accorded to the ministry, with only Rs39 million having been allocated to it in the 2015-16 budget.

Needless to say, other sources of finance, both domestic and international, need to be approached to cope with the economic impacts of the changing climate. This would include accessing international fund flowing in the country via the Economic Affairs Division.

While tapping into domestic sources, public and private finance is the logical first step that many vulnerable, developing countries have started taking. Unless public spending on development is climate proofed, the adverse impacts of climate change will continue to cause huge losses to the economy.

The UNDP supported the Climate Public Expenditure Institutional Review (CPEIR) exercise in 2015 to identify expenditures that the government is directly or indirectly incurring to address climate change in Pakistan. The study revealed significant investments by the federal government, which invested between 5.8 and 7.6 percent of total expenditures between the years 2010 and 2014. Albeit significant, these investments are not sufficient to meet the expanding challenges of climate change.

Although the CPEIR study excludes private sector and NGO expenditures that flow to stand alone activities, private-sector finance largely remains unchartered territory for the government, and is another component of climate finance that needs government’s attention.

Accessing international finance via development partners and international funds set aside for climate action, like the Adaptation Fund (AF), Global Environment Facility (GEF) and Green Climate Fund (GCF), can help supplement the amount needed in addition to domestic finance to adapt to climate change and mitigate climatic impacts. Unfortunately, the processes for accreditation to these funds and subsequent national processes for implementation are complicated – more so for developing country governments that already have limited resources and capacities.

Our Ministry of Climate Change is gaining momentum on engagement with these funds, particularly the GCF. The GCF will have $100 billion per year available from developed countries by 2020 to address the needs of developing countries, which makes it the top source of international finance for vulnerable countries to tap into.

In general, there are two different ways to directly access resources from the GCF – the Multilateral Implementing Entity (MIE) that includes multilateral development banks and the UN agencies that are accredited by the GCF. Another form of direct access is through a National Implementing Entity (NIE) that includes any national institution accredited by the GCF that can submit project proposals for GCF’s consideration.

Efforts in Pakistan to access climate finance from the GCF by mobilising relevant stakeholders on discourse of accreditation and project pipelines are slower than our neighbouring countries. India celebrated accreditation of one national implementing entity in 2015 that can access funds from the GCF, while Bangladesh has shortlisted two organisations after a yearlong process of assessment for accreditation to the GCF. One of the eight projects approved by the GCF for investment in 2015 was submitted for Bangladesh by kfW Development Bank, an MIE.

Perhaps encouraged by the regional success, a few Pakistani private-sector organisations have reached out to the Ministry of Climate Change for endorsement for GCF accreditation. However, the MIE that can access large amount of finance has not been identified by the ministry as yet. Moreover, a call for proposals was issued by the government early this year, receiving various proposals for the GCF from different private and public-sector organisations. However, most of these were not worth investment.

It is clear that informed provincial governments are interested in accessing finance from the GCF, to build the resilience of their economic sectors. However, they don’t have the capacity to develop bankable proposals.

Reflecting the needs of the government to access climate finance, LEAD Pakistan has recently established a focus area on climate finance and readiness that aims to support the government through research, technical assistance and knowledge management on the path towards a climate compatible, resilient and smart economic development.

There’s a lot that the government still needs to do to mobilise finance to make development climate smart. First, the government will need to define the priority areas for investment. This should ideally also include an assessment of financial needs.

Second, capacities and capabilities of the private and public sector need to be developed to enable them to access and disburse finance strategically. The private sector also needs to be engaged to develop financial products for climate action and climate investments.

It may be a long journey for the government to protect economy from the changing climate, but the opportunity that climate finance presents for economic development in Pakistan is not one that can or should be disregarded.

The writer is the focal person, Climate Finance Readiness at LEAD Pakistan. Twitter: @Reejriaz