Budget 2025–26 signals fiscal restraint and modest climate intention, but remains in the core of an improvisation rather than coordinated choreography.
The budget has been touted as a contraction, the budget is ambitious targets: tax deficit of 3.9% of GDP and a record -free profit of 2.4%. Still, these numbers rest on a weak foundation. Tax measures remain largely regressive and offer token placement while the stresses of ordinary citizens.
With increased perks for parliamentarians and stills for development costs, the budget reflects an elite slope. Indirect taxation dominates, while key sectors such as real estate, retail and agriculture remain the subtattet.
While the investment climate remains gloomy: LSM shrunk 1.52% (10MFY25) and public investment is crowded by sky -high debt service, pensions, SOE losses and circular debt. Ergo, the economy remains skewed against rent search and consumption.
Despite having eased inflation and improved reserves, these short -term gains mask a crumbling growth foundation. Pakistan ranks 168. Out of 193 on the UN HDI and last on the WEF Global Gender Gap Report 2025, which reflects deeply gender inequality and chronic sub-investment in education, health and well-being.
While fiscal evil dominates headlines and public discourse, Pakistan’s climate vowels are equally alarming. Ranked as the most vulnerable in 2022, its cities are constantly facing: air pollution, inadequate drainage, paradox for river and drought and heat-island effects.
Per, the latest financial study, the year 2024 was registered as Pakistan’s ninth warmest year in the last 64 years. Further ranks Pakistan 178. Out of 180 on the global environmental performance index, which highlights serious challenges in air quality, water resources and
Climate action.
Despite this, fiscal response remains in conflict. Budget 2025–26 The climate is embedding through a climate budgetary (CBT) system across 5,000+ federal cost centers, critics claim that it often constitutes merely restructuring of existing projects, such as hydropower dams, during a climate tag. Affordable allocations have risen 183%, adjustment by 83% and control -related expenses of RS28.3 billion.
However, these gains are undermined by significant cuts, with disaster preparedness reduced by 30% and pollution cut by 66%, suggesting a reactive rather than proactive climate strategy. Meanwhile, the Ministry of Climate Change has been cut from RS3.5 billion to RS2.7 billion, and the environmental protection allocation is halved from RS7.2 billion to RS3.1 billion.
Political contradictions further weaken the impact. A 2.5% carbon tax has been charged to deter the use of fossil fuel, but without structural reform it feels like just another burden to the poor. Meanwhile, duties on the import of the solar panel are raised and hybrid and electric vehicles are now taxed.
Most regarding is the continued dependence on the revenue of fossil fuel; 81% of the so -called “green” income comes from oil taxes, a shiny fiscal paradox where climate financing depends on carbon -heavy sources. These mixed signals have rightly drawn criticism as “absurd contradictions” that undermine pure energy targets.
The cherry on top? Globally, the landscape is also not encouraging. Multilateralism erodes. The EU’s carbon boundary adjustment mechanism (CBAM), American protectionism and inadequate policeman promises emphasize the expanded gap between rhetoric and reality.
COP29 “Baku to Belem Roadmap to 1.3T” remains ambitious, with only $ 350 billion pledged out of $ 1.3 trillion target that repeats the broken $ 100 billion a year’s obligation in the Paris Agreement. For developing countries like Pakistan, waiting for international funding is both meaningless and dangerous and dangerous.
Against this context, it is obvious that it takes two to tango: fiscal repair and climate insurance must move synchronized. Treating them as separate political traces is outdated. Instead, Pakistan has to utilize climate financing of climate as both a developmental and a fiscal tool that is considering its budget through an integrated green lens.
This is: A well -calibrated carbon tax begins at RS1.500/ton and phases up to RS2,500, a significant opportunity to mobilize domestic climate financing, which potentially generates up to 1.2% of GDP. Unlike the current fragmented framework, this approach could develop into a hybrid tax-and-trading system by 2030, in line with new regional carbon markets. It balances climate ambition with fiscal pragmatism, which enables scaled investment in renewable energy and low -carbon infrastructure.
Meanwhile, the plastics industry, which already contributes over $ 861 million annually in taxes, presents a path to targeted packaging fees. Informed by Kenya’s legislative experience, such measures could finance recycling systems and public engagement to reduce urban waste at the source.
Energy supplement, especially for oil and electricity, which accounts for 87% of Pakistan’s RS1.037 trillion subsidy budget, requires urgent restructuring. With circular debt in the electricity sector now around RS2.4 trillion, a gradual shift from universal subsidies to targeted support for vulnerable groups can facilitate tax pressure while promoting energy transition. Parallel investments in public green infrastructure, especially sun and wind in underrated regions, can stimulate green employment and long -term cost savings.
Pakistan’s early success with Green Sukuk issuing signalizes the potential of Islamic Finance as a sustainability vehicle. By modernizing economic architecture and pursuing mixed financing strategies, Pakistan can better access $ 1.8 trillion Global Interest Energy Investment Pool.
Nature -based solutions also warrant strategic expansion. Programs such as Costa Rica’s payment for MOS model for ecosystem services (PES) or Pakistan’s own billion tree-tsunami could be scaled to finance forest protection and eco-tourism.
Case studies from SWAT’s Miandam Valley reveal how even modest payments can incentive societies while generating environmental value. Rationalization of RS50 billion for RS80 billion in agricultural subsidies could also reduce environmental impairment, while redistributing resources to climate smart practice such as drip irrigation and organic input.
With water availability per The inhabitant now under 1,000 cubic meters (down from 5,260 in 1951) is pricing mechanisms for major users, especially in the industrial sector, important in encouraging efficiency and resilience. This is not an income strategy; It is a national imperative in the light of rising climate and water safety, especially after the monkey of IWT.
According to the IMF, 10 countries with low income are in debt problems, 25 are at high risk and 26 are facing moderate risk, which leaves only seven at low risk. This shows how debt has become a paralyzing burden for over half of the world’s poorest nations. In developing countries such as Pakistan, rising debt is shrinking tax space and threatens financial stability. Debt-for-Klima (DFC) shooters offer a potential solution by canceling or refinancing debt in exchange for climate investments.
For example, in 2023, Ecuador swapped $ 1.6 billion in debt for a blue bond of $ 656 million to financing sea protection.
To make these changes real and lasting, Pakistan must implement a set of activation of actions within a coherent fiscal and climate strategy.
First thing first: Climate budget marking should be waterproof, no more to dress routine development as a climate measure. Disaster expenses must be examined from band-Aid relief to resilience-first strategy. As Dr. Khalid Waleed has noticed on these pages, all carbon tax revenue and a significant proportion of the petroleum tax should flow directly into the Pakistan Climate Foundation and transform climate cats into climate shortage. Implements flagship pilots, solids in underrated areas, e-buses, flood protection housing, with bulletproof M&E to prove impact and magnetis co-financing.
Next, climate to hardwire into federal architecture. Embedded rule-based, climate-trafficed transfers in NFC to strengthen provinces and districts with both foundations and know-how. A fair transition means future -proofing tasks: Running with flood resilent infrastructure and recovering of fossil fuel workers for green performances, supported by social protection.
Climate -Smart Agriculture, think drip irrigation, elastic seeds and water harvesting to increase yields, cut losses and cure ecosystems. And yes, win hearts and minds: Climate taxes need public support, so roll out mass awareness and green in the curriculum.
Finally, climate control is smart and trouble -free. Create climate budgeting devices, activate the cross -sector’s tasksforces and connect the cost of integrated financial management systems (IFMIS) Dashboards for tracking real time. Green public shopping, weighted for life cycle emissions and resource efficiency, must guide where rupe lands.
Build a national carbon register to unlock the future carbon market income. Keep the performance honest with parliamentary reviews, citizen revisions and think tank screens. And not the sidelines the future, give the youth a seat at each table, from political design to project monitoring. Climate -Customs depends on it.
The tango between tax stability and climate liability cannot be danced with one foot. Pakistan’s crisis is two -part and it must also be its solution.
Furqan Ali is a Peshawar-based researcher who works in the financial sector.
Arfa Ijaz is an environmental technician and a researcher who works in the energy sector.
Disclaimer: The views expressed in this piece are the author’s own and does not necessarily reflect Pakinomist.tv’s editorial policy.
Originally published in the news
