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CWA # 2192, 30 June 2026
PR Review
Climate Change and Pakistan’s Economic Faultlines:

  Lekshmi MK
Lekshmi MK is a Research Assistant at the National Institute of Advanced Studies (NIAS), Bengaluru.

On 12 May, the State Bank of Pakistan published a report titled “The State of Pakistan’s Economy: Half Year Report 2025-26.”  The chapter 6 on Climate Change and its Impact on Pakistan’s Economy, examined how climate change is increasingly emerging as a major economic, fiscal, and developmental challenge for Pakistan. 

The chapter highlighted key concerns such as unequal global climate financing, rising economic losses from climate disasters, declining agricultural productivity, growing water insecurity, industrial and labour disruptions, weak institutional preparedness, and limited social readiness for climate action. 

The following are the major takeaways from the chapter on “Climate Change and its Impact on Pakistan’s Economy”
1. Unequal burden sharing and inadequate climate finance
The chapter highlights the deep imbalance in global climate governance, where countries like Pakistan face severe climate vulnerabilities despite contributing minimally to global greenhouse gas emissions. Pakistan contributes only around 1 per cent of global emissions, yet remains among the countries most affected by floods, heatwaves, glacial melt, and erratic rainfall. It argues that global climate financing mechanisms continue to remain unequal, with climate finance flows far below Pakistan’s actual requirements. Although developing countries are expected to undertake adaptation and mitigation measures, financial support from advanced economies remains inadequate and unevenly distributed. Further, it argues that most global climate finance is directed towards commercially bankable mitigation projects rather than adaptation needs faced by highly vulnerable countries like Pakistan.

2. Rising economic and fiscal costs of climate disasters
Climate disasters are imposing economic and fiscal pressures on Pakistan’s economy. According to the report, climate-related disasters caused losses of nearly USD 29.3 billion between 1992 and 2021. Meanwhile, the 2022 floods alone resulted in damages worth around USD 28 billion. Repeated floods, droughts, and heatwaves have damaged infrastructure, displaced communities, disrupted agriculture and industries, and weakened economic growth. It also highlights how climate disasters increase government expenditure on relief, rehabilitation, reconstruction, subsidies, and social protection programmes. These expenditures reduce fiscal space for developmental activities and increase long-term debt burdens. Climate shocks are viewed as major macroeconomic and fiscal challenges affecting Pakistan’s overall economic stability.

3. Declining agricultural productivity and spillover effects on industry and labour
The chapter identifies agriculture as Pakistan’s most climate-sensitive sector, affected by floods, droughts, rising temperatures, and irregular rainfall patterns. Declining crop productivity, livestock losses, and increasing water stress are threatening food security and rural livelihoods. These disruptions extend beyond agriculture and affect industries dependent on agricultural raw materials, particularly the textile sector. Supply chain disruptions, shortage of cotton and other inputs, and rising operational costs are creating pressures on industrial production and exports. Simultaneously, increasing heat stress is affecting labour productivity across sectors such as agriculture, manufacturing, and construction. It also warns that prolonged climate stress could reduce working hours, worsen health conditions, and lower overall economic productivity in Pakistan.

4. Deepening water insecurity
Water insecurity is emerging as one of Pakistan’s most serious structural vulnerabilities under climate change. It highlights how rapid glacial melting, erratic rainfall patterns, declining freshwater availability, and groundwater depletion are intensifying pressure on Pakistan’s water resources. Agriculture faces increasing risks due to inefficient water management and worsening climate variability. The chapter also warns that rising temperatures and prolonged dry spells could significantly reduce river flows and irrigation capacity in the coming decades. Urban areas are similarly facing growing water shortages. Thus water insecurity is viewed as a long-term economic, agricultural, and human security challenge with implications for food systems and social stability.

5. Weak institutional preparedness and capacity constraints
Despite policy initiatives and climate commitments, Pakistan’s climate governance framework continues to face serious institutional and implementation challenges. Weak coordination between federal and provincial authorities, delayed operationalisation of climate institutions, and inadequate integration of climate concerns into broader economic policymaking are highlighted. Major gaps also exist in policy implementation, technical expertise, climate forecasting systems, and data infrastructure. Pakistan’s preparedness is further constrained by limited human capacity in areas such as meteorology, hydrology, climate risk assessment, and greenhouse gas inventory management. The chapter argues that local governments remain underpowered despite being central to climate adaptation and disaster response. 

6. Limited social readiness and low climate prioritisation
The chapter argues that climate change is still not treated as an urgent national priority despite growing public awareness about climate impacts. Although a large section of the population recognises climate-related risks, climate action is not a major national concern for many Pakistanis. Limited public trust in institutions, weak political consensus, insufficient climate education, and inadequate community participation continue to hinder effective climate action. It highlights that many people continue to perceive climate change as part of natural cycles rather than human-induced activity, reducing public willingness to support behavioural and policy changes. Furthermore, weak climate communication and limited media engagement have restricted broader societal mobilisation. 
 

Reference
“Climate Change and its Impact on Pakistan’s Economy,” The State of Pakistan’s Economy: Half Year Report 2025-26, State Bank of Pakistan, 12 May 2026.

 

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