Pakistan’s budget is no longer climate-blind, but it is still not climate-smart. In recent years, the country has taken important steps to integrate climate considerations into public financial management, particularly through the introduction of Climate Budget Tagging (CBT) and reforms under the IMF’s Resilience and Sustainability Facility (RSF).
Yet, despite this apparent progress, a fundamental disconnect persists: climate allocations are increasing, but climate outcomes remain elusive. As the country prepares its upcoming budget, the real question is not whether climate is being counted, but whether it is being meaningfully integrated into how development itself is conceived, financed and delivered.
At the federal level, the institutionalisation of climate budget tagging marks a significant shift. Since its introduction in FY2023–24, CBT has expanded rapidly, covering thousands of cost centres and embedding climate classifications into core budget documents. By FY2025–26, climate-related allocations accounted for approximately 6.9 per cent of current expenditure and 8.2 per cent of development spending, while nearly half of subsidies were classified as climate-relevant.
These figures signal an important transition: climate is no longer treated as a peripheral policy concern but is increasingly embedded in fiscal reporting structures.
However, these numbers require careful interpretation. The expansion in climate-tagged spending is driven as much by methodological changes, such as the inclusion of energy subsidies, as by genuine shifts in fiscal priorities. In fact, the composition of federal climate expenditure reveals a heavy skew towards mitigation, particularly energy-sector subsidies, which accounted for the bulk of the increase in FY2025–26.
While mitigation is critical, this imbalance raises concerns in a country where the most immediate risks are adaptation-related, including floods, heatwaves, water scarcity and agricultural instability.
If the federal picture reflects a methodological evolution, the provincial reality exposes structural weaknesses. Following the 18th Amendment, provinces became the primary actors in climate-sensitive sectors such as water, agriculture, infrastructure and environmental management. Yet, climate budgeting at the provincial level remains fragmented, inconsistent and largely reactive.
Across all provinces, a clear pattern emerges indicating that climate spending is heavily concentrated in adaptation-related sectors such as irrigation, agriculture, and disaster response, but is rarely identified or tracked as climate finance. In Punjab, climate-specific interventions constitute only around 3.0 per cent of the development budget, despite large allocations to sectors with implicit climate relevance.
Sindh exhibits a similar trend, with substantial investments in flood control and urban resilience, yet weak tagging and tracking mechanisms obscure the true scale and effectiveness of climate expenditure.
In Khyber Pakhtunkhwa, the imbalance is even more pronounced. While investments in forestry and disaster management are increasing, up to 70–80 per cent of disaster-related spending is directed towards post-disaster response rather than prevention.
Balochistan, meanwhile, illustrates the extreme end of the spectrum, with high climate vulnerability, low fiscal capacity, minimal allocations and severe underutilisation of funds; only about 17 per cent of the environment development budget was utilised in FY2024–25.
These patterns point to a deeper systemic issue: climate budgeting in Pakistan remains driven by a reactive logic. Public finance is mobilised after disasters occur, rather than being strategically deployed to reduce risks before they materialise. The 2025 floods serve as a stark reminder of this reality. Despite repeated climate shocks, fiscal responses continue to rely on emergency reallocations and external assistance, reflecting the absence of pre-arranged financing mechanisms and anticipatory planning.
Yet the problem is not merely about how much is spent, but about how spending is structured, tracked and linked to outcomes. One of the most critical gaps in Pakistan’s climate budgeting framework is the weak integration of climate considerations into development planning instruments such as the Public Sector Development Programme (PSDP) and provincial Annual Development Plans (ADPs). Climate-related expenditures are often embedded within broader sectoral allocations, making it difficult to assess their impact or alignment with national climate goals.
This is where the often-cited ‘one per cent climate allocation’ under ADPs becomes particularly revealing. While policy discussions suggest that a portion of development spending should be climate-relevant, there is little evidence that this provision is systematically operationalised or transparently tracked.
In practice, this results in symbolic compliance, where climate is acknowledged in principle but remains invisible in practice.
At the heart of this disconnect lies a governance challenge. Climate budgeting in Pakistan operates across three institutional silos: the Ministry of Finance controls resource allocation, the Planning Commission oversees project approval and the Ministry of Climate Change sets policy direction. However, these systems are not fully aligned. The Ministry of Climate Change, despite its policy mandate, has limited influence over fiscal decisions, while provinces responsible for implementation lack both standardised frameworks and sufficient capacity.
The result is a fragmented system where climate priorities are articulated but not translated into coherent fiscal action. Climate finance becomes dispersed across departments, poorly coordinated and weakly linked to measurable outcomes. In such a system, even well-intentioned reforms like CBT risk becoming mere accounting exercises rather than transformative tools.
What, then, must change? First, climate budgeting must move beyond tagging to integration. Climate risk screening should be embedded throughout the entire project cycle, from PC-I design through appraisal, approval, and monitoring. Every development project should answer a basic question: does it reduce climate risk or exacerbate it?
Second, Pakistan needs a standardised, nationwide taxonomy for climate budgets. Without consistent definitions and methodologies across federal and provincial governments, comparisons remain unreliable and transparency is compromised. Harmonisation already envisaged under the IMF RSF must be accelerated and institutionalised.
Third, the budgeting system must become outcome oriented. At present, climate expenditure is largely input-driven, with little linkage to measurable indicators such as resilience gains, emission reductions or vulnerability reduction. Introducing performance-based budgeting, supported by geo-tagging and digital monitoring systems, can help bridge this gap.
Fourth, the focus of climate finance must shift from reactive to anticipatory. This requires the establishment of disaster-risk financing instruments, such as contingency funds, insurance mechanisms and risk-layered financing structures, that enable timely and predictable responses. More importantly, it requires prioritising investments in prevention: early warning systems, climate-resilient infrastructure and ecosystem-based solutions.
Finally, the ‘last mile’ of climate budgeting must be addressed. Allocations at the federal and provincial levels are only meaningful if they translate into real outcomes on the ground, reaching the most vulnerable. This demands a tiered accountability framework that tracks the flow of funds from budget allocation to project implementation to community-level impact, ensuring that climate finance is not lost to institutional leakages.
As Pakistan approaches its next budget cycle, the stakes could not be higher. Climate change is no longer a distant risk but a defining macroeconomic reality, shaping fiscal stability, development trajectories and human well-being. Can Pakistan afford to invest in climate resilience?
The transition from climate-blind to climate-tagged budgeting is an important milestone. But the journey must not end there. The real transformation lies in moving towards climate-integrated, outcome-driven and accountability-focused public finance systems. Only then can Pakistan’s budgets stop reacting to crises and start preventing them.
The writer is an environmental scientist and leads the ecological sustainability and circular economy programme at the Sustainable Development Policy Institute (SDPI), Islamabad.