SBP Warns Climate Change Threatening Pakistan Economy as Flood Losses Cross $29 Billion

The State Bank of Pakistan (SBP) has warned that climate change is emerging as one of the biggest long-term threats to Pakistan’s economy, with climate disasters already causing losses of more than $29 billion over the last three decades.

In its latest Half Year Report FY26 titled The State of Pakistan’s Economy, the central bank dedicated a special chapter to “Climate Change and its Impact on Pakistan’s Economy”, highlighting growing risks to agriculture, energy, infrastructure, exports, public finances and sustainable economic growth.

The report stated that Pakistan remains among the world’s most climate-vulnerable countries despite contributing minimally to global greenhouse gas emissions. According to the SBP, Pakistan is currently ranked among the 15 most climate-affected countries globally due to floods, heatwaves, droughts and extreme weather events.

The central bank estimated that climate disasters caused economic losses worth approximately $29.3 billion between 1992 and 2021, while the devastating 2022 floods alone inflicted nearly $28 billion in damages across multiple sectors of the economy.

The report warned that climate-related shocks are no longer isolated environmental events but are now directly impacting Pakistan’s macroeconomic stability. Agriculture, which remains a key pillar of the national economy, is particularly exposed to climate disruptions through declining crop productivity, water shortages and unpredictable weather patterns.

SBP noted that climate risks are also affecting industrial production, supply chains, tourism, energy generation and financial markets. Rising temperatures and water stress are increasing pressure on electricity production and food security, while extreme weather events continue damaging roads, irrigation systems and urban infrastructure.

The report further highlighted that Pakistan’s economy suffers from relatively high carbon intensity compared to many developing countries, reflecting structural inefficiencies and reliance on fossil fuels. The SBP warned that without major reforms, Pakistan could face mounting international trade pressures as global economies move toward greener standards and carbon regulations.

According to the report, climate financing remains one of the country’s biggest challenges. The SBP observed that international climate inflows remain insufficient, while domestic public and private financing mechanisms are still underdeveloped for large-scale climate adaptation and mitigation projects.

The central bank stressed the urgent need for investments in climate resilience, renewable energy, green infrastructure and sustainable agriculture. It also called for stronger institutional coordination and policy reforms to support Pakistan’s transition toward a low-carbon and climate-resilient economy.

Economic experts believe the SBP’s warning comes at a critical time as Pakistan struggles with recurring floods, rising temperatures, water scarcity and pressure on external accounts.

Analysts say climate change could increasingly influence inflation, food prices, fiscal spending and long-term GDP growth if structural reforms are delayed.

The report also pointed out that climate adaptation is becoming a fiscal challenge because disaster recovery spending often crowds out development expenditure and weakens already-limited public finances.

The SBP emphasized that Pakistan’s future economic sustainability would depend not only on macroeconomic stabilization policies but also on climate preparedness, green investment and resilient infrastructure planning.