Development and Climate Context

Pakistan's economy is characterized by macro-fiscal vulnerabilities and low and volatile growth.

• Pakistan's striking past success in reducing extreme poverty is at risk of reversal.

• Pakistan's macro-fiscal fragility is of great concern in this context.

• Unproductive and inequitable subsidy regimes in the energy, agriculture, and water sectors contribute significantly to chronic fiscal stress and macro instability.

• Low investment and inadequate tax collection add to the fiscal stress.

Pakistan ranks among the top 10 countries most affected by climate change and extreme weather events, underscoring the urgent need for prioritizing adaptation and resilience.

• The negative effects of climate change are already being felt largely through the increased incidence of extreme events, changes in water resource availability, the accelerated melting of glaciers and sea level rise.

• Pakistan is heavily impacted by the loss of biodiversity and ecosystem services, further increasing the adverse effects of climate change.

• The combined risks from the intensification of climate change and environmental degradation, unless addressed, will further aggravate Pakistan's economic fragility, and could ultimately reduce annual GDP by 18 to 20 percent per year by 2050.

• To put this in perspective, just a 9 percent reduction in GDP would be enough to completely undo hard-fought gains in poverty reduction.

Although Pakistan is a relatively minor contributor to climate change, it should seize the opportunity of global decarbonization efforts to help decouple its socio-economic growth from costly, polluting and carbon-intensive fossil fuels.

• In 2018, the country's total annual greenhouse gas (GHG) emissions were estimated at 499 million metric tons of carbon dioxide equivalent (MtCO2e), including land use and forestry.

Pakistan has already made enhanced commitments in its 2021 Nationally Determined Contribution (NDC), notably on strengthening resilience and accelerating energy decarbonization.

• The 2021 NDC represents a shift toward an inclusive, innovative, and whole-of-economy approach to addressing climate change.

• Under the global Methane Pledge (MP), Pakistan has also committed in 2021 to reducing its methane emissions by 30 percent, from 2020 levels, by 2030.

Development and Climate Policy Priorities

• Action to build resilience and adapt to climate risks is imperative for Pakistan—and is an integral part of a sustainable and equitable national growth strategy.

• To achieve its climate and development goals, Pakistan additionally needs to work on two key enablers: improving human capital and strengthening governance.

Priority Sectoral Transitions

Priority #1: Transforming the Agriculture-Food System

A transformation of the agri-food system will bolster rural incomes, strengthen food and water security, and underpin a sustainable and climate-resilient rural economy and environment.

• Pakistan's agri-food system is vital to the nation's economy, yet productivity has been chronically low, and the sector faces significant new risks from climate change.

• Agriculture-linked degradation is pushing water and land resources beyond the threshold of safe use and causing ecosystem decline across landscapes.

• The irrigation and drainage system that undergirds agriculture is in disrepair and ill-equipped to manage climate extremes.

• The agri-food system is awash with inefficient, costly, and inequitable subsidies that are an economic burden and create a distorted incentive structure, which plays a significant role in the sector's poor performance.

• At the same time, the services essential for increasing productivity—research, extension, and the development of markets—have been neglected.

• Skewed land ownership and tenure insecurity are further impediments on the path toward a more sustainable and climate-resilient agriculture.

• Despite these challenges, the agri-food sector provides perhaps the strongest case for a development-resilience-mitigation triple win.

Policy Recommendation #1: Repurpose existing subsidies to introduce efficiency and use freed-up resources to provide support to vulnerable subsistence farmers and remove barriers to transformative, climate-smart, on-farm investment and value-chain improvements.

Policy Recommendation #2: Support the sustained adoption of CSA and regenerative agriculture practices.

Policy Recommendation #3: Improve and modernize irrigation and drainage to provide climate-resilient, predictable, and flexible services in response to changing demand.

Policy Recommendation #4: Strengthen ecosystems and landscape restoration.

The report analyses also the following priorities:

Priority #2: Building Resilient and Livable cities.

Priority #3: Accelerating a Just Transition in Energy and Transport.

Priority #4: Strengthening human capital to achieve sustained and
equitable development and climate resilience.

Priority #5: Aligning financing policies, incentives, and institutions
to support the scaling up of climate actions