Author: Shabir Arain, October 3 2017 - Programs are getting more grip due to increasing avenues of domestic and international Climate finance. For developing countries, climate finance is undoubtedly becoming the key Incentive to integrate climate change issues into their development discourse and advance their efforts and initiatives to mitigate and adapt to the impacts of climate change. According to the climate Policy Initiative (CPI) report, in 2014, annual global climate finance flows approximately reached $392 billion, of which $34 billion flowed from developed to developing countries. Pakistan is a relatively new player in the international climate finance arena with a promising institutional setup, and, hence, has limited experience in receiving or disbursing international climate finance resources. As of 2012, it had only $15 million in disbursements of multilateral finance explicitly for climate change.


1.1 Domestic Climate-Relevant Finance of Pakistan

a. Mechanisms and Tools

At the domestic level in the country, there is no separate and dedicated funding to date for mitigation and adaptation activities. The national planning processes and budgetary framework lack a separate standard coding system for the identification of climate-relevant projects and programs scattered across different sectors and departments. According to the recent Climate Public Expenditure and Institutional Review (CPEIR) study for Pakistan (2015), the total federal climate-related expenditure (development + current budget) was estimated to be around 6.52% during the last 4 years.77 The relative proportion of the climate-relevant budget spent on adaptation and mitigation varied significantly across studied years. Similarly, the number of climate-relevant projects and proportion of projects within each government institution varied greatly during the study years, suggesting a lack of directed and consistent resource allocation and policy delivery toward climate activities.


1.2 Planning Processes and accessibility toward Climate Change

The Ministry of Planning, Development, and Reforms (Planning Commission) and the Ministry of Finance (MOF) are the two apex planning and coordination bodies of the national government that exercise an authoritative power in financial resource allocation, execution, and distribution to line ministries. The Medium-Term Budgetary Allocation Framework, acting as the central guiding approach, sets the process of budget allocation in motion by establishing a budget maximum for each ministry. The budget is earmarked for both the development projects and recurrent expenses of each ministry where recurrent expenses get the major chunk of the budget once approved, the development budget is displayed in the Public Sector Development Program (PSDP). The PSDP document lists all the public sector projects and programs with specific allocations made for each in a particular financial year.


1.3 Climates-Relevant Expenditures in the Federal Budget

The process of budget allocation tends to reinforce the core and business-as-usual activities.

According to the CPEIR, “…Projects that solely focus on mitigation or adaptation to climate change rank low on the prioritization scale at all levels of decision-making in the government, barring the examples of the big investment and foreign-funded projects, e.g., hydro projects for increasing energy supplies and water availability rank high even if their externalities lead to mitigation of climate change emissions.”

The inclusion of projects in the development budget (i.e., PSDP) is further affected by many other factors, e.g., the political influence of stakeholders and parliamentarians, political parties’ manifestos, foreign funding, and a lesser influence of sector policies. Moreover, at the implementation and execution cycle of the federal budget, the finance and planning divisions or departments have a centralized role in allocating fiscal resources across sectors and departments, among expenditure heads, and activities and schemes. Such centralized control discourages line ministries from saving on wages, and diverting funds toward enhancing allocation for repair and maintenance expenditures. The climate-relevant budget analysis for the federal government (2010–2014) shows a very low ratio of climate-related expenditures in the federal budget, which varied between 5.8% and 7.6% of the annual total federal budget.


2. Provincial Financial Landscape and Climate Change

Following the 18th constitutional amendment, the expenditure pool of the provinces increased significantly. For example, after the 18th constitutional amendment, the budget expenditure for the province of Khyber Pakhtunkhwa increased by 35% and consequently; the development budget (the Annual Development Plan) represents 30%–32% of the total budget (2010–2014), according to the CPEIR study. Moreover, grants from the external resources represent 80%–90% share in the fiscal resource pool of the province.

The climate change-relevant budget analysis for the province shows that climate change-related projects make up 75%–82% of development expenditure lines (compared to 47%–56% at federal level in 2010–2014) and nearly three-quarters of the climate activities in Khyber Pakhtunkhwa had an adaptation component falling under water, disaster, and health sectors. On a sector basis, transport (28%), water (20%), and awareness raising and education (18%) make up about two thirds of the Khyber Pakhtunkhwa climate budget of the Annual Development Plan.

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