ISLAMABAD: Climate-related shocks are beginning to weigh on Pakistan’s economic growth, inflation and fiscal stability, with the State Bank of Pakistan warning that extreme weather events could deepen macroeconomic vulnerabilities in the coming years.
According to the SBP’s Half Year Report 2025-26, Pakistan remains among the world’s most climate-vulnerable countries despite contributing only a small share to global greenhouse gas emissions. The report said recent floods and temperature shocks have already affected GDP growth, agricultural output and consumer prices.
Flood-related disruptions during FY26 damaged major crops, including cotton and maize, while supply-chain interruptions pushed food inflation higher during the first half of the fiscal year.
Although recovery efforts helped contain agricultural losses better than initially feared, the central bank said climate risks remain deeply embedded in Pakistan’s economic structure.
Agriculture and food prices face growing pressure
The SBP report said agriculture, energy, labour productivity and public finances are becoming increasingly exposed to climate risks.
Pakistan’s agriculture sector grew 2.2 percent during H1-FY26, but the overall performance masked significant damage to key crops caused by floods and erratic weather.
The central bank said climate variability is already affecting crop yields, irrigation patterns and food supply chains, creating longer-term risks for food security and inflation management.
Rising temperatures and irregular rainfall are also expected to increase pressure on water availability and agricultural productivity in the coming years.
Climate disasters add pressure on public finances
The report said floods, heatwaves and droughts are causing rising economic losses as they become more frequent and intense.
Such events disrupt agriculture, industrial activity, transport networks and labour productivity, creating wider pressure on economic growth.
The SBP noted that environmental disasters also raise government spending needs through emergency relief, reconstruction costs and subsidy support.
This comes as Pakistan faces limited fiscal space due to high debt-servicing obligations and weak tax revenues, making climate adaptation more difficult.
SBP calls for stronger climate resilience
Climate-related disruptions also complicated inflation management during H1-FY26, as flood-related supply shortages and lower crop output pushed food prices higher.
Heat-related disruptions also affected logistics, transport flows and energy demand management.
The report cited World Bank estimates suggesting climate change could have an increasingly severe impact on Pakistan’s GDP by 2050 if adaptation and mitigation measures remain insufficient.
The SBP identified weak institutional coordination, implementation gaps, limited technical capacity and insufficient climate financing as major obstacles to effective climate action.
The central bank said improving climate resilience would require stronger policy coordination, greater investment in adaptation infrastructure, wider use of climate-smart agriculture and expansion of renewable energy systems.
The report warned that failure to address these vulnerabilities could undermine Pakistan’s efforts to achieve sustainable growth and long-term macroeconomic stability.
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