Climate-smart finance bill – Newspaper

The financing bill or proposed budget for the next financial year has refused to commit any resources or even set the national direction for climate resilience. The country has failed to recognize that Pakistan is one of the most climate-sensitive countries in the world, and perhaps the least prepared. The country has once again missed the opportunity to set the course for Pakistan’s sustainable economic development. Worse still, the proposed budget does not outline a vision for climate-resilient investments.

The financing bill has shown no particular interest in institutional or policy reforms that could help stem the economic hemorrhage caused by repeated climate-induced disasters or the slow onset that threatens GDP and per capita income growth. Ironically, despite heavy losses, Pakistan has not explicitly incorporated climate considerations into the budget process.

The government has instead opted for a simplistic formula to raise tax and non-tax revenues, mainly by cutting subsidies. Economic development is a secondary goal, and climate-resilient development is not even on the horizon. As is the case in several other countries, governments can ensure that public finances are aligned with climate change mitigation and adaptation objectives.

The Planning Commission has still not embedded adaptation and mitigation into PC-1s that form the backbone of annual public sector investments. The Treasury Department has not yet started tracking climate spending, despite efforts over the years by various development partners. The office of the Accountant General Pakistan Revenues has not climate-proofed reporting of federal transactions, nor has the Auditor General improved its auditing standards and disclosure rules. The FBR does not track or report climate-related tax expenditures, nor has it supported the development of climate-resilient infrastructure by ensuring that tax policies and regulations promote investments in climate-resilient projects and infrastructure. In fact, none of the major government players have strengthened climate-smart budgets by embedding climate considerations into their processes. These gaps are reflected in provincial budgets.

We must integrate climate considerations into overall budget planning processes.

Some of Pakistan’s neighbors have started climate-proofing their annual budgets. Bangladesh is now moving away from its least developed country status and becoming, like Pakistan, a lower-middle-income country. It stands out for its long journey towards human development and climate resilience. As part of broader efforts to mainstream climate finance into its public financial management systems, Bangladesh established the Climate Change Trust Fund in 2010 with government assets of US$350 million. Designed to help communities recover from climate disasters by supporting the construction of homes in cyclone-affected areas, the CCTF has supported the construction of dikes and the provision of solar energy systems. Although our Finance Bill announced the government’s intention to establish a similar fund, the Chancellor of the Exchequer, following the Climate Change Act of 2017, clouded its future by not pledging any government equity, without which capital it will remain a fictitious fund.

Another example is the Climate Fiscal Framework that Bangladesh has implemented since 2014. The CFF, revised in 2022, emphasizes institutional coordination between planning, finance and other departments to ensure effective implementation of climate policies and programs. The CFF is designed to ensure that their vulnerabilities are integrated into national development and resource mobilization strategies. It gave way in 2018 to a budget tagging system that tracks and reports all climate-related expenditures, allowing them to identify, classify and highlight climate-relevant allocations in the budget system. There is a lesson for Pakistan: such tracking systems not only help improve policymaking to address climate vulnerabilities, but also contribute to transparency and accountability in its budgets.

A climate-smart budget would generally be based on five pillars: i) an assessment of the potential impacts of climate change on different sectors and regions, ii) a mechanism to track and report on related expenditure, iii) alignment with national policies and objectives , such as the Nationally Determined Contributions, iv) prioritizing resource allocation for mitigation, adaptation and resilience building, and v) accessing domestic and international climate finance to fill resource gaps.

In other words, rather than treating the problem as an isolated issue, Pakistan must integrate its climate considerations into the overall budget planning processes. Governments around the world routinely focus on domestic financing through national budget reallocations, the establishment of national/subnational climate funds and partnerships with the local private sector, civil society and local authorities. Such an intention is not reflected in the proposed budget. Similarly, the budget bill has not committed to systematically pursuing innovative green financing mechanisms such as green bonds, green loans and green guarantees to mobilize climate finance.

It is true that Pakistan’s fiscal space is limited, yet we are still pursuing traditional debt relief, which involves rescheduling, forgiving or reducing a portion of a country’s debt, often through bilateral or multilateral agreements. This approach is aimed at reducing the debt burden, without necessarily addressing environmental and climate problems. Debt-for-climate swaps, on the other hand, involve converting debt into funds dedicated to environmental conservation and climate mitigation. This approach addresses both the debt problem and climate change by focusing debt payments on climate-friendly projects.

Several developing countries have used debt-for-climate swaps to finance climate projects. This approach aims to reduce debt burden, without necessarily compromising environmental or climate considerations. Debt-for-climate swaps, on the other hand, involve converting debt into funds dedicated to environmental conservation and climate change mitigation. This can help tackle both the debt problem and climate change by redirecting debt payments towards climate projects.

Some economies in similar positions are trying to manage their debt burden by exploring measures such as debt-for-nature swaps, debt-for-climate swaps, green bonds and domestic financing through national budget reallocations, partnerships with the local private sector or public financing. private partnerships to develop and finance climate change projects. The proposed budget is silent on these options and leaves matters to the imagination of our federal and provincial economic managers. Instead of taking a simplistic, linear approach to macroeconomic stabilization, it is time to set the direction for a climate-resilient country. The financing law can still provide us with the space to accelerate our journey to a resilient economy.

The writer is an expert on climate change and sustainable development from Islamabad.

Published in Dawn, June 20, 2024