Climate Finance Strategy

From Opinion: Implementing fiscal strategy

National Climate Finance Strategy: A Fundamental Shift in Policy Priorities

The recent introduction of the National Climate Finance Strategy (NCFS) marks a pivotal milestone in Pakistan’s approach towards climate change integration within national policy frameworks. This strategy rectifies historical oversights by governments, reflecting a proactive stance toward addressing climate change’s multifaceted challenges within policymaking processes.

Reshaping Institutional Portfolios and Innovative Financial Instruments

The NCFS heralds an era of heightened ambition, aiming to reorient the portfolios of crucial national institutions toward climate finance. This shift involves enabling innovative financial instruments, securing carbon credits, and fostering accreditation with global climate funds. The strategy’s comprehensive approach underscores Pakistan’s commitment to fostering a climate-resilient economy.

This reorientation aligns with the ongoing $3 billion Stand-by Arrangement with the IMF, wherein building resilience to climate disasters emerges as a core objective. The strategy not only strives to mitigate environmental impacts but also aims to alleviate economic burdens imposed by climate-related disasters.

Unlocking Fiscal Space and Global Financing

One of the immediate benefits anticipated from the NCFS is the creation of much-needed fiscal space while concurrently fortifying resilience against climate-induced adversities. This aligns with the World Bank and IMF’s stance, emphasizing that future development and climate financing hinge upon Pakistan’s alignment of national investments with the Climate-Public Investment Management Assessment (C-PIMA).

Embracing Climate-Resilient Investment Practices

The introduction of C-PIMA, derived from the IMF’s established PMIA framework, underscores a critical shift in evaluating and fostering climate-resilient investments. This assessment, anticipated to be a prerequisite for disbursements, signifies the government’s commitment to aligning public investment institutions and processes toward cultivating a low-carbon and climate-resilient economy.

Pakistan’s pledge to present the C-PIMA for cabinet approval signifies a proactive step toward ensuring future investments are inherently climate resilient. The strategic focus on key institutions like the Special Investment Facilitation Council (SIFC), Public Sector Development Plans (PSDP), and Public-Private Partnership Authority (3PA), managed under the Planning Commission, exemplifies a concerted effort toward climate-conscious investment planning.

Notably absent from this blueprint, however, is explicit mention of the China-Pakistan Economic Corridor (CPEC), raising questions about its integration within this overarching climate finance strategy.

The Role of the Sustainable Finance Bureau

The establishment of the Sustainable Finance Bureau (SFB) within the Planning Commission signifies a concerted effort to revolutionize climate finance in Pakistan. This bureau is anticipated to drive a substantial reorientation, aiming to allocate 20 percent of the new Public Sector Development Program (PSDP) schemes, amounting to Rs925bn for FY 2023-24, toward climate-focused projects.

Leveraging Concessional Finances and Meeting International Commitments

These earmarked projects under the SFB’s purview are expected not only to qualify Pakistan for concessional finances but also to assist in fulfilling targets outlined in the National Adaptation Plan (NAP) and the Nationally Determined Contributions (NDCs). The alignment with these international commitments, integral to the Paris Agreement, showcases Pakistan’s dedication to addressing climate challenges on a global scale.

Construction Standards and Climate Resilience Measures

Regarding construction standards, the extent of Pakistan’s revision to mitigate climate risks and associated costs remains unclear. However, the government’s strategic investment in resilience via initiatives like the 4RF (Resilient Recovery, Rehabilitation, and Reconstruction Framework) post the 2022 floods and the updated 4th NFPP (National Flood Protection Plan) signifies a proactive step toward bolstering climate resilience.

Deriving Sectoral Priorities and Whole-of-Government Approach

While the blueprint of the NCFS lacks specifics, the forthcoming sectoral priorities are anticipated to draw from the National Climate Change Policy and NAP. These priorities are expected to be formulated by respective sectoral ministries and departments.

Meeting IMF Conditionalities and Timebound Implementation

The amalgamation of ongoing endeavors to meet IMF conditionalities exemplifies a ‘whole-of-government’ approach, aligning with national and provincial policies emphasizing inter-ministerial coordination. The forthcoming review of NCFS under the C-PIMA framework, encompassing climate-smart planning, inter-ministerial coordination, project appraisal and selection, budgeting, portfolio management, and risk management, underscores a comprehensive evaluation mechanism.

Creating Synergy for Timely Implementation

Despite the government’s commitment, the question arises regarding the synergy necessary for timebound implementation. The fiscal strategy’s commitment to introducing new templates for project concept notes, technical feasibility studies, and comprehensive planning documents from initiation to completion holds promise in streamlining project execution and ensuring adherence to stipulated timelines.

Institutional Reforms: Catalyzing Climate-Conscious Governance

The envisioned reforms necessitate an overhaul in project planning and financial tracking mechanisms, compelling the Planning Commission to revise project classifications from PC-I to PC-V. This revision aims to ensure that public sector projects encompass comprehensive mapping of climate risks while aligning with adaptation, mitigation, and development co-benefits. Simultaneously, the finance ministry is tasked with adopting robust mechanisms to monitor and track all climate-related expenditures.

Multifaceted Brass-Tracking Initiatives

The multifaceted approach involves several pivotal fronts, namely:

i. SFB Launch and Project Templates: The commencement of the Sustainable Finance Bureau (SFB) and the formulation of templates for climate-smart projects within the PSDP.

ii. Expenditure Tracking Initiation: The initiation of comprehensive tracking mechanisms for climate-related expenditures.

iii. Ecosystem Development: Establishing an encompassing ecosystem encompassing carbon trading policies, digitalization of carbon inventories, and requisite monitoring and validation systems.

Precursors for Strategic Objectives

Progress in these initiatives stands as a precursor to achieving the two urgent objectives outlined in the NCFS: accessing concessional finances and mobilizing private sector investments. However, historical constraints attributing Pakistan’s limited access to international climate finance to technical capacity gaps within focal ministries underline the need for a deeper understanding of systemic issues.

Governance Challenges and Structural Reforms

The present governance landscape elucidates a concerning trend where many ministries and provincial departments prioritize setting up specialized units to attract climate finance over embedding resilience within their sectoral policies and projects. This fragmented approach highlights governance lacunae, creating confusion among policymakers, development partners, private investors, and citizens alike.

NCFS: Navigating Toward Discipline and Reform

The National Climate Finance Strategy (NCFS) emerges as a beacon of hope amidst this governance complexity, aiming to instill discipline amidst the prevailing mayhem. However, beneath macro-level commitments lies a pressing need for extensive structural and institutional reforms. The IMF’s entry into Pakistan’s climate change sphere introduces a new dimension, with ongoing efforts to define standards and procedures, reflecting the evolving landscape of international climate finance.

Climate-Resilient Infrastructure: Unmet Definitions and Imperative Revisions

Pakistan’s terminology, like ‘climate-aware infrastructure,’ remains unadopted and undefined, let alone implemented practically. The aftermath of the 2022 floods, where substantial losses of $30 billion primarily stemmed from infrastructural damages across housing, education, health, roads, and transmission lines, underscores the urgency of revising construction standards to mitigate climate risks and consequent costs.

Strategic Direction and Reform Imperatives

The IMF’s pivotal role in shaping Pakistan’s resilience journey and facilitating the release of subsequent tranches highlights the need for setting a realistic roadmap. Balancing the reform-resistant bureaucratic machinery, urgent climate action imperatives, and leveraging the Stand-by Arrangement remains critical for the interim government.

Synchronized Implementation and Interlinked Domains

The upcoming second IMF review in 2024, encompassing planning, coordination, projects, budgeting, portfolio management, and risk management, necessitates the synchronized implementation of the finance strategy. This synchronization is crucial for transcending ministerial silos prevalent within the governmental framework.

Imperative of a ‘Whole-of-Government’ Approach

The NCFS envisioned as an inter-ministerial and multisectoral document, mandates a ‘whole-of-government’ approach. However, this necessitates exercising convening power to bridge existing gaps and foster collaboration among ministries, a critical factor in effective implementation.

Climate Finance, Governance, and Diplomacy Nexus

Climate finance’s efficacy hinges on robust climate governance and diplomatic maneuvers, particularly vital in international platforms like COP28. The symbiotic relationship between climate governance and diplomacy requires concerted efforts to leverage one to maximize the other. The imperative lies in endowing the NCFS with a dedicated secretariat, ensuring oversight and concrete realization, rather than relying on chance for implementation.

Conclusion:

In conclusion, the introduction of the NCFS and the impending adoption of C-PIMA mark a significant paradigm shift in Pakistan’s approach to national investments. This strategic direction not only reinforces the country’s commitment to climate resilience but also underscores the imperative of aligning fiscal policies and institutional frameworks with global climate imperatives. The establishment of the SFB and the envisioned reorientation of PSDP schemes signal a proactive stance toward climate finance. However, the successful implementation of these strategies demands a concerted effort in translating policy pronouncements into tangible action, fostering inter-agency collaboration, and adhering to prescribed timelines for project execution.

Difficult words:

1. Encompass: To include or contain something.
2. Ecosystem: A complex network or interconnected system.
3. Precursors: Things that happen before and serve as indicators or warnings of what might happen in the future.
4. Purview: The scope or range of authority or concern.
5. Multifaceted: Having many facets or aspects.