In Budget FY2026-27, the Finance Division has tagged Rs70.462 billion for adaptation, down almost 18 per cent from FY2025-26. It has tagged Rs124.067 billion for mitigation and Rs19.490 billion for supporting activities. These figures exclude subsidies.
Look at the amount allocated for subsidies: of Rs476 billion classified as ‘favourably green’, energy receives Rs423 billion. Food receives Rs19 billion and agriculture Rs21 billion. Energy therefore receives more than ten times the combined food and agriculture amount. The budget classifies the energy support as directly favourable to climate goals while it labels the food and agriculture support only ‘indirectly’ favourable.
One should keep in mind that these numbers cover federal allocations only. Provinces finance much of agriculture, irrigation and local infrastructure. Some allocations for water and roads may also be labelled as allocations for food systems. We would need those figures, along with actual spending, to assess the total amount spent on food systems. However, clearly food and agriculture receive a much smaller share of the federal government’s green subsidies than their exposure to climate shocks would seem to warrant.
Agriculture is highly vulnerable to climate change. The 2022 floods damaged crops, livestock and infrastructure. The joint assessment by Pakistan and its development partners put damage to agriculture, food, livestock and fisheries at about $3.7 billion. Farmers also lost earnings while their land remained flooded and their animals lacked feed.
In fact, climate shocks affect the whole food system. Heatwaves affect crop yields and milk production. Drought reduces water and fodder and weakens livestock. Floods destroy seed, standing crops, roads, electricity connections, markets and storage. All of this leads to reduced food availability, which in turn puts pressure on prices.
One can well understand why energy is a preferred candidate for climate finance. A solar or wind project can absorb a large loan. It is a visible asset and generates a measurable stream of electricity. Lenders can estimate revenue generated and emissions avoided from these projects. Agricultural adaptation, by contrast, produces benefits across thousands of farms. These benefits may not produce a cash flow that repays a commercial loan.
That financing logic favours projects that earn revenue over those that prevent future losses. A drainage channel may save an entire village’s crops without earning enough to repay its cost. If there is no allocation for that channel, the government may later have to pay for relief, repair roads and import food. Avoiding those costs gives the government a reason to finance prevention.
Looking at the whole food system would expand the scope for adaptation finance. It would cover water management and seed research on farms, along with rural roads, drainage, storage and reliable cooling after harvest. In a recent agribusiness report, the Asian Development Bank estimates that Pakistan loses about $2 billion of food after harvest each year. Losses reach 20 to 40 per cent in some value chains. These estimates draw on earlier studies and vary by crop and location. Climate finance could reduce post-harvest losses from heat, floods and drought.
Reduction in post-harvest losses also connects climate finance with diet affordability. In my August 7 piece for these pages (‘Pakistan needs a healthy-diet index’), I cited the UN estimate that 63 per cent of Pakistanis, or 161 million people, could not afford a minimum healthy diet in 2025. To adjust to food inflation or amidst reduced income, poor households cut spending on milk, eggs, pulses, fruit and vegetables.
Think of what happens to milk, fruit and vegetables before they reach those households. They spoil faster than grain and depend more heavily on cooling, careful handling and timely transport. Protecting them from heat and disrupted supplies would leave more food available for sale, reducing food prices. This would have dual benefits. Consumers could pay less while farmers sell more of what they produce.
A climate fund or bank will need costed projects before it can finance this work. Federal ministries deal with international climate funds and sovereign borrowing. However, provinces manage irrigation, extension, and much rural infrastructure. Likewise, most projects are executed at the district level. Combining related projects across nearby districts would help the provinces to design a programme large enough for the federal government to assess and finance.
A lender would reasonably ask how a project will repay its loan. Pakistan needs different financial instruments for different risks. Public budgets and grants should fund assets that benefit many people, including climate data, extension, seed research, flood protection and rural roads etc. Concessional loans can finance shared storage, efficient irrigation, processing and cooling where users can pay part of the cost. Insurance can cover defined weather risks if farmers understand what triggers a payment and insurers settle claims promptly. Businesses that can borrow commercially and pay back could do so without a subsidy.
As a way forward, the ADB recommends diverse financial instruments to finance food and agriculture in Pakistan. It suggests establishing an agribusiness investment fund and proposes issuing green bonds, viability gap funding and a project preparation facility. It also asks the commercial banks to focus on credit guarantees and warehouse receipt finance. Warehouse receipts can help farmers borrow against stored produce and avoid selling immediately after harvest. A credit guarantee can persuade a bank to lend by covering part of a possible loss. In contemporary development financing discussions, the above-mentioned measures are called ‘alternative financing measures’.
At the Sustainable Development Policy Institute (SDPI), we are working on how to increase the breadth and reach of alternative finance in Pakistan. We have evidence from peer economies that such financing would help the government avoid thinly spreading its resources and instead target public funding for useful projects that cannot earn enough from user charges.
Along with the government realising the importance of alternative financing, financial institutions would also need to make some operational changes. Banks that insist on land as collateral exclude tenants and many women who grow food or keep livestock. Instead of land, the banks can lend against earnings, accept group guarantees or finance leased equipment.
Underfunding the food systems is no longer an option if the federal and provincial governments are serious about ensuring food security.
The writer heads the Sustainable Development Policy Institute (SDPI), chairs the board of the National Disaster Risk Management Fund and serves on the ADBI’s Advisory Board. He posts on LinkedIn @Abidsuleri
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