IMF urges Pakistan to raise climate weighting to 30% in PSDP project selection

The International Monetary Fund has urged Pakistan to significantly increase the climate change weighting in its public investment appraisal system to at least 30% for all infrastructure projects and to introduce clearer, publicly disclosed procedures for selecting schemes under the Public Sector Development Programme.

In its second review under the Extended Fund Facility and first review of the Resilience and Sustainability Facility, the IMF said Pakistan needs a comprehensive system to identify climate-related spending across federal and provincial governments, align budgeting with the National Climate Change Policy, and regularly monitor execution against planned climate allocations.

The report said the IMF’s Fiscal Affairs Department would consult the World Bank on climate finance elements of the project selection process, adding that better-designed climate investments could improve fiscal and external sustainability by lowering spending needs and reducing import demand for climate-related infrastructure and disaster response.

The IMF also called for revising the PSDP call circular so that all new major infrastructure projects costing more than Rs7.5 billion undergo climate vulnerability, adaptation and mitigation screening before being included in the budget. It recommended publishing a consolidated report summarising the screening results for all such projects.

In addition, the Fund advised expanding the federal climate budget-tagging framework to include grants and subsidies and extending tagging to provincial spending. It recommended issuing an annual climate budget statement and quarterly execution reports to track climate expenditure and explain deviations from targets.

The IMF further stressed the need for the Ministry of Planning to publish project selection criteria on its website, including a scorecard showing the weight assigned to each criterion and the methodology used to calculate scores, along with an annual cap on the total size of new projects entering the PSDP.

According to the report, supplemental support will be provided by the Asian Development Bank, while the World Bank will offer technical assistance on budget preparation. It added that the European Commission is developing new public financial management support, and the UK’s Foreign, Commonwealth and Development Office is coordinating efforts to integrate green budgeting at the provincial level.