The flood damage is rising by the day – both in terms of fatalities and financial losses (private and state owned) with the last monsoon rains forecast to end this week. The question is whether the government has enough means to meet the needs of the growing number of victims?
There are two sides to this query. First, whether external donor assistance would be forthcoming. In this context it is relevant to note that in the 2022 floods where devastation was estimated at over 40 billion dollars the government received pledges of around 10 billion dollars (a mixture of grants and loans) and two years later, by 2024, had received only 2.8 billion dollars of the pledges. It is unclear how much of the disbursed amount was in loans and where it was spent given that Prime Minister Shehbaz Sharif recently publicly lamented that “we have learned no lessons from 2022.”
Many parliamentarians are urging the government to build dams, including the extremely politically controversial Kalabagh Dam that prompted Sindh ministers to oppose its construction.
The 2022 Minister for Climate Change Sherry Rehman, who together with the then Prime Minister Shehbaz Sharif played a pivotal role in raising awareness on the scale and depth of the devastation in Pakistan globally, tweeted the following last week: “Every time there is a super flood a lot of people start clutching at “magic bullet” solutions like mega dams. I hate to blow the myth, but the era of huge dams is behind us. For several reasons.
Tarbela had huge US financing behind it. Mangla too had international consortium financing like ADB, WB in the aftermath of the Indus Water Treaty. Now we should focus on completing Diamir and Dasu if we can. Any other big dam conversations should be rooted in reality, they can neither be financed nor maintained for silt.
Both our big dams are silted up because the Himalayan range feeds them and is known for extremely high silt flows. The solutions are not at all unattainable and, for storage, fairly simple if designed holistically. Build a network of water harvesting reservoirs, among other hydromet solutions like micro dams. The small dams can certainly absorb surges and store, but let’s not confuse storage with flooding.
Our storage capacity is ridiculously low. That must change. Small dams are the way forward, for maintenance, financing, and faster operational delivery. For flooding, it is crucial that a climate-water audit be done for the whole country with joint solutions on unchecked urban development, forest wipeouts, unchecked mountain mining and river courses be stopped. This will not stop the floods.
The river will run its flooded course to the sea and the quantum of flooding will go up because of high glacial melt at 16 % in some of our peaks. But it will manage how we face them and how many losses we run into, including agri yields. Important also to review agricultural land use for future food and water security.”
Pakistan’s human resource capital is of a quality that does determine the right prescription for what ails the country; however, political will continues to prioritize the elite capture of resources. This was rightly pointed out by the incumbent Climate Minister, Dr Mussadaq Malik, who publicly pointed to elite capture policies being responsible for exacerbating the impact of climate change on the economy (no doubt referring to the timber mafia and the builder’s mafia).
The International Monetary Fund (IMF) approved a 1.4 billion dollars Resilience and Sustainable Facility (RSF) in May 2025 to support efforts in building economic resilience to climate vulnerabilities and natural disasters – a loan targeted to begin in parallel with the second review (due mid this month).
The RSF is to be used as “budget support, creating fiscal space to address Pakistan’s climate vulnerabilities and substituting for more expensive domestic commercial financing. Disbursements will increase reserves and thus improve the balance of payments.” That space no doubt has shrivelled post June this year, with the flood damage beyond expectations of the Fund.
RSF set the following target: “an additional 1 percent of GDP in investment in climate adaptation and resilient infrastructure per year for five years would reduce the negative impact of a natural disaster shocks on growth by about half, five years after the shock and would allow a much quicker return of the economy to the previous GDP levels.”
The budget for 2025-26 allocated a total of 716,766 million rupees this year against revised estimates of 278,313 million rupees last year under the following climate outlay no doubt to meet the IMF loan condition to ensure climate sensitive projects under the Public Sector Development Programme (PSDP). This amount was allocated as follows: (i) adaptation 85,435 million rupees against 46,625 million rupees, (ii) mitigation 603,000 billion rupees against 212,861 million rupees last year and (iii) supporting areas 28,331 million rupees against 18,887 million rupees in 2024-25. It is unclear whether 716,766 million rupees includes the budgeted allocation of 2784 million rupees for climate change division under the head of PSDP (against last year’s budgeted amount of 5257 million rupees).
In addition, embedded under current expenditure was an allocation of 389 billion rupees for emergency and others though it was noted that out of this total “15 billion rupees is provision for natural disasters triggered by natural hazards.”- an amount that is clearly not enough to deal with the current devastation.
The GDP for last fiscal year was 114,692 billion rupees and the government budgeted 4.2 percent growth for the current year (expected to be no more than 0.5 to one percent due to the floods) which implies a projected GDP of 119,509 billion rupees with one percent equivalent of 1195 billion rupees. In other words, the budget allocates less than the “additional one percent” pledged to the Fund. Can domestic resources deal with the effects of climate change? The answer is a resounding no with the budget deficit projected at 6501 billion rupees (37 percent of the total outlay) reliant on domestic and external borrowings – borrowings that simply ante up the mark-up components of the current expenditure accounting for nearly 50 percent as per the budget.
So what is the government likely to opt for? There possibilities exist. First, a mini-budget that, if past precedence is anything to go by, would raise and/or widen indirect taxes further whose incidence on the poor is greater than on the rich – a decision that would raise the risks noted by the IMF in its first review documents dated May 2025: “Risks to consistent policy implementation include resistance to adoption of reforms, underperformance of tax revenue, high gross financing needs, low gross reserves, and sizeable net FX derivative position of the SBP, coupled with sociopolitical tensions, which could erode repayment capacity and debt sustainability.
Uncertainty about global geo-economic and financial conditions in major trading partners adds to these risks.” The severely contractionary fiscal policy is already having a major negative impact on productivity and employment levels and one would hope that the economic team leaders carefully review which sectors have the potential to increase revenue with a minimal impact on the well-being of the general public.
Second, the government is likely to slash PSDP as is the usual practice and finally seek more loans domestically and internationally which would double the fiscal deficit from the budgeted 3.9 percent and increase the currency in circulation – measures that would fuel inflation significantly.
To conclude, Pakistan is once again between a rock and a hard place and any claims of a turn-around in the economy would have to be deferred for another year and that too on the hope that the monsoon would be more sedate next year unlike in 2025.
Copyright Business Recorder, 2025
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