Daily Times

Climate change is a global phenomenon which has widely affected every field of life; it needs the transformation of the world economy at a speed and scale which has no documented historic precedent. Moreover, the devastating effects of climate change which are expected to take place in several decades will appear by 2040 at a lower temperature (current carbon emissions will add 1.5 degrees Celsius to the global temperature above preindustrial levels by 2040), said Myles Allen, an Oxford University climate scientist. The upsurge in temperature would be double what has been estimated by the researchers due to global warming, according to an international team of researchers from 17 countries.

The rise in temperature will cause serious shocks to the world economy; it will affect the developing economies the most. Coral Davenport, writer to The New York Times, estimates that the damage would come at a cost of $54 trillion to the global economy. Pakistan is the 7th most affected country among the 135 countries in the world because of climate change (the largest greenhouse gas emitter is our neighbouring country – China): according to the Global Climate Risk Index released by the public policy group German Watch, Pakistan has been bearing economic losses of around 25-27 billion dollars due to climate change caused effects: floods, sea intrusion, and heavy rains/cloudbursts, between 2010 and 2016.

Besides, extreme climate change conditions also damage the country’s gas, oil, and power infrastructure and probably affect the performance of nuclear power plants. It is estimated that the flooding and infertility of land has made more than 10 million people migrate, and financial losses have been estimated at $2 billion. To deal with adverse climate conditions, Pakistan requires 700 to 1400 billion rupees annually, predominantly, in the agriculture and energy sectors.

The losses incurred due to climate change caused damages and expected costs of carbon emission would be a strong challenge for the economy of Pakistan. It would not be able to absorb even a moderate shock of financial crisis this time. Pakistan is already in need of funds

The government of Pakistan has determined to reduce carbon emissions by 2030, as required by nations that signed the Paris Climate Accord. It is estimated that it would cost 30 Euros (about $35 USD) per metric ton of CO2 to reduce the effects, OECD report reveals. Energy and transport sectors are the largest source of carbon emission, constituting half of the national total, while agriculture produces around 40 per cent. The emissions will touch the level of 400 million tonnes of CO2 equivalent (per year) by 2030 if it grew with the pace of growing economic activities, said Qamar-uz-Zaman Chaudhry, former director-general of the Pakistan Meteorological Department.

The power sector is constantly undergoing losses due to infrastructure damage and non-recovery of dues. In addition to 600 billionn debt, it has requested for fresh loan of RS 340 billion to sustain the power production; but, commercial banks have refused to provide more loans. However, Islamic Banks have agreed for financing ofRS 200 billion. The Economic Coordination Committee (ECC) also approved government guarantee to NPPMCL to raise loan of RS38billion from financial institutions in order to meet remaining cost of its two power plants. The losses have not only exposed the power sector to bankruptcy but also has made financial sector vulnerable to crisis. (meeting of the ECC of Cabinet, presided over by Finance Minister Asad Umar).In addition, the circular debt has reached to RS 1.2 trillion: Power Holding Private Limited (PHPL) had borrowed RS 582.86 billion whereas RS 566 billion was borrowed to cover receivables of power distribution companies. PHPL was to pay RS 153 billion in annual interest on the loans.

Moreover, Agriculture is the backbone of the economy of Pakistan; textile is the prominent sector that contributes to the export of the country. But the recent climate change has adversely affected the agricultural sector more than any other sector in the country. The record data shows that the agricultural sector has borrowed from banks: RS 598 billion in 2016, RS 704 billion in 2017 and expectedly RS 800 billion by the end of 2018. The abrupt changes in climate not only caused losses to the agriculture sector but also severely harmed the financial sector, making it difficult for the agriculture sector to pay the loans back to banks.

Pakistan is bank-based economy and banks heavily participate in loan provision for investment activities. Unfortunately, banks failed to recover the lent amount at full capacity, resulting in non-performing loans (NPL). Large proportion of the NPL comes from power sector and agricultural sector. State Bank data shows that the cumulative non-performing loans of financial sector in Pakistan have reached RS 652 billion in 2018 which were Rs 627 billion in 2016. The financial sector of Pakistan would not tolerate the financial crisis as it has doubled the non-performing loans (RS 325 billion) since 2008, and it will hit the financial sector stronger this time.

The losses incurred due to climate change caused damages and expected costs of carbon emission would be a strong challenge for the economy of Pakistan. It would not be able to absorb even a moderate shock of financial crisis this time. Pakistan is already in need of funds. The total debt has reached the figure of $96 billion ($9.3 billion debt service costs), which the State Bank has revealed in September 2018. It will not be in a position to support the banks and energy sector if financial crisis prevails.

To prevent the agricultural, energy, financial sector and national economy from crisis, substantial decisions have to be taken to minimize the climate change and its unwanted effects. The recent trend of green financing and tsunami tree plantation would be fruitful in alleviating the greenhouse effects.

The writer is a Lecturer at International Islamic University, Islamabad

Published in Daily Times, February 10^th 2019.