Pakistan Urgently Needs Significant Investments in Climate Resilience to Secure its Economy and Reduce Poverty

ISLAMABAD, November 10, 2022-Climate change-induced disasters could significantly set back Pakistan's development ambitions and its ability to reduce poverty. To foster people-centric climate adaptation and resilience, the country needs fundamental shifts in its development path and policies, requiring substantial investments including international support, according to the World Bank Group's Country Climate and Development Report (CCDR) for Pakistan released today.

This year's climate change-induced heatwave followed by devastating and unprecedented floods have caused more than 1,700 deaths and displaced more than 8 million people. The destructive effects on infrastructure, assets, crops, and livestock have also been massive, with over 33 million people affected across the country and more than $30 billion in damages and economic losses.

The report notes that the combined risks of extreme climate-related events, environmental degradation, and air pollution are projected to reduce Pakistan's GDP by at least 18 to 20% by 2050. This will stall progress on economic development and poverty reduction.

"The recent flooding and humanitarian crisis provide a wake-up call for urgent action to prevent further devastation to the people of Pakistan and its economy due to climate change," saidMartin Raiser, World Bank Vice President for South Asia. "Accelerated climate actions can protect the economy from shocks and secure more sustainable and inclusive growth in Pakistan."

The report recommends five priority transitions to adapt to climate change: transform the agri-food system; build resilient and livable cities; accelerate a just transition to sustainable energy and low-carbon transport; strengthen human capital to achieve sustained and equitable development and climate resilience; and align financing policies, incentives, and institutions to support the scale-up of climate actions.

To implement a climate-resilient and low-carbon development pathway, estimates of total investment needs up to 2030 amount to over 10% of the cumulative GDP for the period. The report recommends accelerating the reforms to expand domestic revenue mobilization, including by raising new municipal and property taxes to finance urban investments. It highlights the importance of improving efficiency and targeting of subsidies for agriculture and energy while protecting the most vulnerable. Yet, even ambitious increases in fiscal resources over the coming years will not be enough for Pakistan to finance all the needed investments, so significant international support and private investment will be essential.

"If we want to tackle climate change, we need to prioritize investing in adaptation to help prepare Pakistan for future climate-related calamities, which are growing in frequency and intensity," said Hela Cheikhrouhou, IFC Regional Vice President for Middle East, Central Asia, Türkiye, Afghanistan and Pakistan. "With the right policy frameworks, Pakistan has the opportunity to attract private investment to build its resilience, particularly in sectors such as water management, agriculture, urban infrastructure, municipal services, and housing."

Pakistan is not a significant contributor to global warming, but it is on a high-growth trajectory of carbon emissions linked to fossil fuel use. This is also a source of the country's chronic fiscal stress and worsening air pollution. Therefore, climate actions that bring co-benefits to both adaptation and mitigation and contribute to improving development outcomes should have the highest priority.

"Foreign private capital can play an important role in addressing the climate change challenges in Pakistan," saidEthiopis Tafara, MIGA Vice President and Chief Risk, Legal and Administrative Officer. "Sustaining flows of foreign direct investment that support climate mitigation and adaptation will contribute toward financing Pakistan's low-carbon transition."

The five sets of recommended policy transitions are:

1. Transforming the Agri-Food System: The agri-food system is the largest employer in Pakistan, particularly for poor and vulnerable households. But the sector's productivity has been plummeting due to the degradation of land, the overuse of chemical inputs and water, and the lack of research. Productivity is expected to decline further, with yields projected to drop another 50% by 2050, threatening food security. Repurposing environmentally damaging subsidies, promoting climate-smart and regenerative agriculture and livestock systems, and prioritizing ecosystem restoration will be key to bolster rural incomes and strengthen food and water security.

2. Building Resilient and Livable Cities: By 2050, 60% of Pakistan's population will live in urban areas, already highly exposed to pollution and climate change. Making cities more livable and inclusive would bring large economic benefits. Urgent reforms are needed for more integrated land use planning, investments in municipal services, the use of nature-based solutions, and investment in energy efficiency and clean transportation. Strong municipal governments and the expansion of city finances via property taxation are critical.

3. Accelerating a Just Transition to Sustainable Energy and Low-carbon Transport: Pakistan's energy sector is a critical enabler of economic development and poverty reduction. However, it is a huge drain on public finances and foreign exchange and is one of the biggest contributors to the country's GHG emissions. Pakistan must prioritize reducing the cost of generation including through energy efficiency, ensuring cost-reflective tariffs, and improved targeting of subsidies, while addressing technical and collection losses in transmission and distribution. Scaled-up investment in mass transit can avoid locking in highly polluting modes of transport.

4. Strengthening Human Capital to Achieve Sustained and Equitable Development and Climate Resilience: Pakistan needs to address its human capital crisis. This can be achieved by addressing poor management of water, sanitation and hygiene, a principal driver of child stunting; and by reducing the country's high fertility rate. Pakistan should also ensure universal access to quality schooling and expand its social-protection system by improving benefits, particularly for those at the highest risk.

5. Aligning Financing Policies, Incentives, and Institutions to Support Scale-up of Climate Actions: Implementing these policies and investments will require a comprehensive financing strategy, greater private sector involvement, domestic revenue mobilization, and robust institutions that are accountable for improved public spending. International climate financing will be essential to complement Pakistan's own commitment to resilient and inclusive development.

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World Bank Group Country Climate and Development Reports

The World Bank Group's Country Climate and Development Reports (CCDRs) are new core diagnostic reports that integrate climate change and development considerations. They will help countries prioritize the most impactful actions that can reduce greenhouse gas (GHG) emissions and boost adaptation, while delivering on broader development goals. CCDRs build on data and rigorous research and identify main pathways to reduce GHG emissions and climate vulnerabilities, including the costs and challenges as well as benefits and opportunities from doing so. The reports suggest concrete, priority actions to support a low-carbon, resilient transition. As public documents, CCDRs aim to inform governments, citizens, the private sector, and development partners, and enable engagement with the development and climate agenda. CCDRs will feed into other core Bank Group diagnostics, country engagements and operations, and help attract funding and direct financing for high-impact climate action.

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