Analysis: Budget 2025-26 — Climate budget a ‘walking contradiction’
• Little heed paid to building resilience through adaptation, one of the finance minister’s oft-mentioned priorities, with only Rs85.43bn earmarked for the purpose
• Funding cuts at the ministry mean less resources for ‘project-isation’ of donor funding available to the country
THE federal government has earmarked a major chunk of next year’s budget for climate-resilient development, but its failure to set a clear course of action and policy contradictions weigh heavily on financial allocations that amount to hundreds of billions.
A key feature of this climate-focused budget is the implementation of the ‘Climate Budget Tagging’ (CBT) tool, which enables the classification of climate-sensitive expenditures in line with the National Climate Change Policy.
Climate tagging was introduced under the IMF Resilience and Sustainability Facility (RSF), approved earlier this year. “Tagging may be defined as the process of systematically identifying, tracking, and categorising expenditures related to climate change objectives,” according to a post on the IMF Public Financial Management Blog.
Under the $1.4 billion loan, the IMF asked Pakistan to climate-tag its Public Sector Development Programme (PSDP) projects either in the category of adaptation, mitigation, or supporting areas, according to Sustainable Development Policy Institute (SDPI) Research Fellow Dr Khalid Waleed.
Adaptation overlooked
In light of this demand, the government set aside Rs85.43bn for adaptation (resilience), Rs603bn for mitigation (clean energy), and Rs28.33bn for supporting areas, including capacity building, institutional development, and research.
Likewise, the government has also touted the ‘green component in subsidies’ with Rs529bn allocated to the energy sector under ‘mitigation’ — an amount deemed ‘directly favourable’. Industry and transport sectors will receive Rs9bn and R7.3bn under the same category.
For adaptation, Rs20bn has been set aside for food and Rs22bn for agriculture — both these allocations have been described as ‘indirectly favourable’.
According to this classification, a substantial amount will go to mitigation — i.e. reduction of emissions — even though the finance minister has, on multiple occasions, underscored “adaptation” as being the biggest challenge.
“While we need to deal with mitigation, the real issue — and bigger issue — is adaptation,” were his words at DawnMedia’s Breathe Pakistan conference earlier this year.
But it is seemingly on his watch that the government has earmarked a pittance for that purpose, both in terms of development funds and subsidies.
Skewed priorities
Talking to Dawn, former climate change minister Malik Amin Aslam said the budget “lacks a reprioritisation of our future economic growth model to reflect the rising challenge of climate change”. There is a need for a completely new “mindset rooted in new climate-compatible research” to address this issue, he said.
For instance, there is a need for new drought-resistant crop varieties, climate-proofing of the age-old infrastructure as well as innovative adaptation through climate crop insurance, and the enactment of early warning systems, he said. “All of that is missing in the budget,” he added. He said the climate tagging was a good exercise, but it is just “repackaging old wine in new bottles” as it rebrands existing ongoing spending, mostly on hydropower dams, as climate resilience.
Climate finance expert Ali Tauqeer Sheikh argues that the steps taken in the budget were encouraging, but “are not enough” and lack transparency. A lot of money has been set aside for climate projects but there is no clarity on how these projects will be implemented, he said, adding that there is a need to specify who those allocations are for.
“The second point is to eliminate contradictions from our financial allocations. On one hand, you say that you are imposing levies (2.5pc carbon levy) to discourage the fossil fuel industry. On the other hand, you are imposing duties on the solar import and you are reducing the cost of the net metering,” he said, while also mentioning the volte-face on e-vehicles.
The EV policy measure was also criticised by Mr Aslam. “The Budget 2025 imposes a Carbon Levy to finance green development while imposing heavy taxation on Solar panels (0 to 18pc) and Hybrid EV vehicles (8 to 18pc) — a really absurd contradiction?” he wrote in a post on X (formerly Twitter).
Mr Sheikh pointed out that if the government was serious about discouraging the use of fossil fuels, it would “incentivise transition towards solarisation, particularly by the poor segment[s] by giving them subsidies… The main point is that the policy is contradictory”.
Cuts at the ministry
The Climate Change ministry is also facing funding cuts, from Rs3.5bn to Rs2.7bn, with its spokesperson calling this a setback for climate research and technical capacity-building.
Mr Aslam, the former climate minister, agrees and warns that budget cuts will impact not only research and data-based prioritisation, but also any follow-up “project-isation” of the climate resilience funding being made available to the country.
Due to funding cuts for ministry, initiatives undertaken by it to build technical and research capacity will be hampered, spokesperson Muhammad Saleem Shaikh said.
He agreed that there was a huge gap in climate research and capacity in Pakistan and these funding cuts would further set them back. According to the official, Pakistan faces annual Rs400bn losses due to climate change.
Against this grim backdrop, the budget under the head of ‘environment protection’ has also reduced from Rs7.2bn to Rs3.1bn, with funds for ‘pollution abatement’ going down from Rs6.29bn to Rs3.1bn. The allocations for the wastewater management slightly increased from Rs967m to a little over Rs1bn.
Published in Dawn, June 16th, 2025
Header image:Men walk along a flooded road with their belongings, following rains and floods during the monsoon season in Sohbatpur, Pakistan on August 28, 2022. — Reuters/Amer Hussain