Climate change, Resilience and Sustainability Facility, and beyond

On their webpage, titled ‘Resilience, environment, and climate change’ the United Nations Development Programme (UNDP) has indicated ’As per the worldwide climate index, Pakistan ranks 8th most vulnerable country to the impacts of climate change.

The variability in climate and weather patterns has increased the frequency of disasters which undermines development in Pakistan. Moreover, Pakistan’s economy remains highly vulnerable to future threats posed by climate change.’

To underline the deep extent of high level of exposure facing Pakistan to climate change, as per ‘Climate Risk Index 2025’ report published on February 12 by ‘Germanwatch’, the country has been highly affected by extreme weather over the last many years.

It needs to be pointed out here that ‘the Climate Risk Index (CRI) ranks countries by the human and economic toll of extreme weather’, and is being ‘published since 2006, is one of the longest running annual climate impact-related indices.’

The report highlighted that during 2022 floods, the country lost close to 1800 lives, and economic loss stood at US$54 billion. The report pointed out that ‘the CRI ranking indicates Pakistan, Belize, and Italy were the most affected countries in 2022… Pakistan (1st) ranks highest mainly because of exceptionally high relative economic losses.’

Moreover, the report covering data from 1993 to 2022, found that Pakistan was among the countries ‘affected by recurring extreme events (continuous threats)’; where ’the category of continuous threats has grown more relevant in the past few years. These countries continuously rank among the most affected in the long-term index and the index for the respective year.

Also regarding this category are clear indications that climate change contributes to transforming unusually extreme events into continued threats.’

Hence, given this background, which clearly indicates that not only is Pakistan among the top-most climate change vulnerable countries, such climate change-related disasters have picked up pace due to the fast-unfolding nature of climate change crisis.

So, not only does the country need to invest in building resilience against catastrophes, including rebuilding the damage already been caused, there is also a requirement to build capacity for early monitoring of ‘tipping points’ that lead to climate catastrophes.

In this regard, it needs to be pointed that scientists believe there are around 16 tipping points.

An article ‘World on brink of five “disastrous” climate tipping points, study finds’ published by The Guardian in September 2022 indicated: ‘The climate crisis has driven the world to the brink of multiple “disastrous” tipping points, according to a major study. It shows five dangerous tipping points may already have been passed due to the 1.1C of global heating caused by humanity to date.…In total, the researchers found evidence for 16 tipping points, with the final six requiring global heating of at least 2C to be triggered, according to the scientists’ estimations. The tipping points would take effect on timescales varying from a few years to centuries.’

Moreover, efforts are being made to better understand the underlying workings of the tipping points, so that an effective early warning system can be created, about which another article by the same publication titled ‘Early warning system for climate tipping points given £81m kickstart’ pointed out: ’An ambitious attempt to develop an early warning system for climate tipping points will combine fleets of drones, cosmic ray detection and the patterns of plankton blooms with artificial intelligence and the most detailed computer models to date.

The UK’s Advanced Research and Invention Agency (Aria), which backs high-risk, high-reward projects, has awarded £81m to 27 teams.

The quest is to find signals that forewarn of the greatest climate catastrophes the climate crisis could trigger.’ Home to a significantly big area under glaciers for instance, Pakistan should look to collaborate in this effort.

An important ingredient to all of this is the need for adequate level of climate finance.

For countries like Pakistan, which in addition to being highly climate change vulnerable, are also greatly debt distressed and have low fiscal space, along with the world’s biggest youth bulge, requiring, in turn, non-austerity policies and high economic growth, and where poverty is rising, with more than 40 percent of the population below the poverty line, it would have been better that International Monetary Fund (IMF), for instance, created ‘exceptional treatment’ for these countries.

So, while the ‘Resilience and Sustainability Facility’ (RSF) is a good initiative to help emerging and developing countries in terms of climate finance related assistance, it would have been better in the best-case scenario that the assistance should have come as grant over the medium- to long-term, and in the form of annual release of climate change-related allocation of special drawing rights (SDRs) by IMF for countries like Pakistan that are highly climate change vulnerable, and are also facing not so distant likely default fears.

For instance, Pakistan has to pay close to US$20 billion annually in external debt repayments over the medium-term, an amount that may likely rise due to high upward risk given the ‘polycrisis’ nature of world. Here, to keep a check on countries that money was being spent the right way, a programme document could be signed with clear indication of resilience-related conditionalities, and the grant amount released after successful programme reviews.

Moreover, while G20 committed providing US100 billion annually, as re-channeled SDRs to the ‘Resilience and Sustainability Trust’ – from which the RSF will be financed – up till November 22, 2024 US$ 46.8 billion (or SDR 35.8 billion) had been provided.

Here, in the direction of line of thinking of ‘Bridgetown Initiative’ – led by the Prime Minister and Finance Minister of Barbados, Mia Amor Mottley – the climate financing effort needs to be re-moddled as per the three suggestions (among others, related to different aspects of ‘international development and climate finance architecture’) under this initiative, and as indicated in the document ‘Bridgetown Initiative on the reform of the international development and climate finance architecture’ as ‘We call upon the IMF to boost country capacity to invest in resilience, including by re-channeling SDRs through MDBs. We call upon the IMF and its shareholders to agree on a new issuance of at least $650bn in SDRs to expand the balance sheets of MDBs to support SDGs and climate action. We call upon the IMF to reduce the cost of lending including by making it easier to access the Resilience and Sustainability Facility (RSF) on a stand-alone basis and extending the Extended Fund Facility repayment period to match the RSF.’

Looking closely at the terms of the RSF, it is important to realize that although Pakistan is among the most climate vulnerable countries, and also debt distressed, since just because it falls in the lower middle income group, and not the low income group basically, the facility creates no room for this and will therefore, likely put the country in ‘Group C’, which is the toughest in terms of terms and conditions of repayments.

Hence, not internalizing enough this difficult situation facing Pakistan (and other countries with similar situation) with regard to climate vulnerability, and deep debt distress – and IMF only just facilitating in allowing the country to avail RSF – the country is mainly looked as a lower middle-income country or a country having a GDP per capita of a little over US$1,500, for which IMF provides least soft conditions; whereby surcharge rate is applied at 50 basis points, and margin at 95 basis points, on top of the three-month SDR rate, which in itself works on the flexible exchange rate regime, and during recent times increased significantly to rise above 3 percent.

‘Group A’, on the other hand, pays no surcharge, and pays ‘55 basis point margin up to a maximum interest rate of 2 ¼ percent’, and ‘Group B’ paying a lower level of surcharge than ‘Group C’ at 25 basis points, and margin at 25 basis point, not to mention both Groups A and B facing less difficult terms just because they have basically lesser per capita GDP, which is not to say that countries that are ten times below the IDA operational cut-off limit that for fiscal year 2025 (and updated annually) stood at US$1,335 should not be provided special assistance, the issue is that countries like Pakistan, which are just above the operational cut-off limit, should not be treated much differently.

The reason is that while countries with not much GDP per capita should be provided climate finance, the terms should not be much different for countries, at least to the extent of those countries that fall in the lower middle-income category. This is because of the low fiscal space of such countries, and given the main reason why such facility is being provided in the first place is because many of these countries are highly climate vulnerable, and are also greatly debt distressed.

It is important that Pakistan not only raises these issues with the technical mission of RSF that is currently visiting the country, and meeting authorities to create basis for release of US$ 1 billion annually to Pakistan, it also points out the need for IMF to stop charging an otherwise ‘junk fee’ in the shape of surcharge fee.

Here, although the IMF has reduced the burden of surcharge fee through amendments carried out under review of ‘the review of charges and surcharge policy’ in October 2024 – whereby, as per IMF’s press release no. 24/385, the Executive Board made changes including ‘[1] Increasing the borrowing threshold above which surcharges apply by 60 percent, to 300 percent of quota from 187.5 percent of quota’, and ‘[2] Reducing the time-based surcharge rate by 25 percent, to 75 basis points from 100 basis points’, and to be effective November 1, 2024 –yet they should be abolished altogether given countries that are already facing serious shortage of climate finance, and are traditionally having deep balance of payments issues, should not have to pay fines on late repayment of interest payments, or for going beyond their allocated quota – since this is allowed to a country by IMF if that country’s balance of payments, or climate finance needs, or both, have adequate basis for obtaining exceptional financing beyond their quote in the first place – given serious fiscal space shortages in a world of huge investment demands of polycrisis related resilience creating needs.

Renowned economics Nobel laureate, Joseph E. Stiglitz, and noted economist Kevin P. Gallagher in their February 2022 published article ‘IMF surcharges: a lose-lose policy for global recovery’ lambasted the surcharge policy by plausibly arguing that ’The IMF has imposed significant surcharges on countries that have had to undertake large borrowings and are unable to pay their debts back quickly. …These surcharges, payable in hard currency, are imposed on countries just at the time when they are typically facing a real shortage of such currency.

Surcharges are counterproductive, because they are pro-cyclical. To meet the additional foreign exchange requirements, countries may be forced to take even more contractionary policies, like reducing imports, at enormous costs to society in every dimension, including an increase in poverty. The IMF thus exacerbates the underlying problem.’

More recently, on October 3, 2024, a number of members of US Congress wrote a letter to then secretary, US Department of the Treasury, Janet Yellen, in which they sought an end to the surcharge policy. To quote: ‘With substantive reforms under consideration at this month’s Annual Meetings [of World Bank Group, and IMF], we write to urge you to use the United States’ voice and vote at the Fund to support discontinuation of this harmful policy.

As you know, surcharges are additional fees that the IMF imposes, on top of regular interest payments and service charges, on countries whose debts to the IMF exceed a certain threshold. For heavily indebted countries, these surcharges significantly increase the cost of borrowing, can undermine efforts to reduce debt burdens to sustainable levels, and may divert valuable public resources away from other potential uses such as health, education, and climate adaptation.

Twenty-two countries now pay surcharges, nearly triple the figure prior to the COVID-19 pandemic, and the five countries most impacted – Argentina, Ecuador, Egypt, Pakistan, and Ukraine – paid the IMF US$7 billion in the last five years.’

Copyright Business Recorder, 2025