Pakistan is facing a major financing challenge as it seeks to implement climate action measures amid limited fiscal space, rising debt-servicing costs and increasing pressure on public finances.
The country’s climate investment requirements are substantial. Under its Nationally Determined Contribution (NDC) 3.0, Pakistan has set a voluntary target of reducing projected greenhouse gas emissions by 50 per cent by 2035, with 17pc of the reduction to come from domestic resources and the remaining 33pc dependent on international financial support, technology transfer and capacity building. The estimated investment requirement stands at $565.7 billion.
However, Pakistan’s ability to mobilise such resources remains constrained by competing demands on the national budget, including debt servicing, social protection, energy-sector pressures, economic recovery and disaster response.
Climate-related projects often require significant investment upfront, while their benefits, including stronger ecosystems, reduced disaster losses and greater resilience, may emerge over longer periods.
Pakistan has so far secured only a fraction of the financing required to meet its climate objectives. The gap between its estimated needs and available resources remains a significant challenge for the country’s climate strategy.
At the domestic level, climate financing also faces pressure from reduced fiscal allocations. According to figures cited in the latest analysis, the overall climate-related allocation in the FY27 budget fell from Rs716.7 billion in FY26 to Rs214bn. The adaptation allocation declined from Rs85.4bn to Rs70.4bn, while mitigation funding fell from Rs603bn to Rs124bn.
At the same time, Pakistan is dealing with increasingly frequent and severe climate-related risks, including heatwaves, droughts, rising temperatures, changing rainfall patterns and flooding.
Several institutional and financial constraints are limiting Pakistan’s ability to attract and effectively use climate finance.
Climate responsibilities are largely devolved to provincial governments, while international climate commitments and carbon-market coordination remain with the federal government. This division can create coordination gaps between different levels of government.
Another challenge is the limited capacity to develop bankable climate projects. Without technically sound and financially viable proposals, Pakistan can struggle to access available international funding.
The country also lacks a fully consolidated mechanism to track non-budgetary climate finance, including international, private and blended financing. This makes it more difficult to accurately assess total resources and strengthen negotiations with international partners.
Limited fiscal space, high public debt, low savings and investment levels and currency risks associated with foreign-denominated financing further complicate efforts to mobilise climate capital.
Private-sector participation is another key component of climate financing. Public resources continue to account for a large share of adaptation finance, while private investors often face difficulties in assessing climate risks and identifying clear commercial returns from adaptation projects.
To address these challenges, Pakistan is working on measures including a climate finance taxonomy, expanded climate budget tagging, climate-risk screening of public investments and a pipeline of bankable climate projects.
The government is also seeking to mobilise domestic and international capital through carbon markets, green and sustainability-linked bonds, blended finance and climate-focused public-private partnerships.
Pakistan’s NDC 3.0 identifies international climate finance as an important component of achieving its targets, particularly through grant-based and concessional financing.
Pakistan is also seeking to strengthen cooperation with international financial institutions. The World Bank’s Country Partnership Framework for FY2026-35 includes climate resilience and cleaner energy among its key outcomes.
The country is also engaging with multilateral institutions to improve access to climate finance and develop a stronger pipeline of investment-ready projects.
Experts and policymakers have stressed that individual financing instruments will not be sufficient to bridge the gap. A coordinated national system for assessing climate needs, tracking allocations, screening projects and directing domestic and international resources towards priority areas is considered essential.
Pakistan’s NDC 3.0 places significant emphasis on international support, with the country seeking predominantly grant-based or concessional climate finance alongside technology transfer and capacity building.
