Estimated reading time: 11 minutes

This summer, unprecedented heavy rainfall during the monsoon period caused widespread flooding across Pakistan, taking hundreds of lives across the country and devastating homes and fields. While heavy rain is characteristic of the monsoon season, rising global temperatures have led to higher precipitation concentrated in a shorter time, which has been making rainy seasons more and more deadly across the world. In Pakistan, a rising player in global trade and key regional agrifood exporter, the toll of these natural disasters is higher than just a loss of lives. 

Silvia Andreoletti, Senior Reporter at Trade Finance Global (TFG), spoke to Dr Mohammad Faisal, High Commissioner of Pakistan to the United Kingdom, about the long-term effects of the floods and their ramifications for global trade. 

Silvia Andreoletti (SA): Can you tell us a bit about the recent human and economic impact of the floods, especially on Pakistani small businesses?

Dr Mohammad Faisal (MF): The recent floods in Pakistan have unleashed a humanitarian and economic catastrophe of immense proportions. Since late June, we have tragically lost over 1,000 lives nationwide, a toll that is already triple that of the same period last year and even surpasses the devastating floods of 2022. This is the fourth major flooding in the past 15 years, and the human cost is immeasurable.

Economically, the impact is profound and far-reaching. While a full assessment is ongoing, the devastation extends across critical sectors. Small businesses, which form the backbone of Pakistan’s economy and are vital for employment and local trade, have been particularly hard hit. Many have seen their premises, inventory, and equipment completely destroyed or submerged. This has meant a loss of individual livelihoods, a disruption to local supply chains, a halt in economic activity, and a severe blow to the resilience of communities. 

For many SMEs, which often operate with limited capital and insurance, recovery without significant external support will be incredibly challenging. The ripple effect of these closures impacts employment, local purchasing power, and the overall economic fabric of affected regions – in Pakistan and beyond. The sheer scale of these climate-induced events consistently overwhelms existing capacities, leaving behind a trail of economic devastation that demands urgent and coordinated international support –from political, business, and financial communities.

SA: How will the floods affect Pakistan’s exporters and regional trade as a whole, both in the short and long term?

The floods pose a significant threat to Pakistan’s export capabilities and regional trade.

In the short term, the immediate impact is severe disruption. Submerged roads, damaged bridges, and inundated railway lines create critical bottlenecks, hindering the movement of goods from production centres to ports and border crossings. This directly affects our ability to meet export commitments, leading to delays, increased logistics costs, and potential penalties.

For example, agricultural exports, which are highly time-sensitive, face immediate losses due to damaged crops and an inability to transport produce. This disruption extends to regional trade, as vital transit routes are cut off, impacting the flow of goods to neighbouring countries and potentially causing ripple effects across regional and even global supply chains.

The long-term implications are even more concerning. The extensive damage to critical infrastructure – including roads, railways, power grids, and communication networks – will require substantial investment and time to rebuild. This long-term damage increases the cost of doing business, erodes investor confidence, and can deter future trade partnerships.

The repeated nature of these climate events also necessitates building climate-resilient infrastructure, which is a costly and time-consuming endeavour, but absolutely essential to safeguard our trade future. Our commitment to boosting exports, as outlined in the Uraan 5 Es Plan, faces an unprecedented challenge from these climate realities, underscoring the urgent need for resilient trade infrastructure.

SA: What does Pakistan need from the international banking community right now in terms of climate or trade finance?

MF: Whether it’s under COP commitments or climate adaptation finance, the support from the international community so far has been lacking. There are not enough funds available, and from those that are, only a small percentage has been delivered, meaning the government of Pakistan and individual donors or organisations have had to dig deep in their pockets to provide relief to the Pakistani population in the face of these disastrous floods.

Pakistan needs a multi-faceted and innovative approach moving beyond conventional models. We urgently need solutions like:

1. Grant-based and highly concessional funding: The sheer scale of adaptation needs – estimated at US$152 billion between 2023 and 2030, with most still unfinanced – cannot be met through market-rate loans that exacerbate our debt burden. We need accessible grants and highly concessional financing to invest in climate-resilient infrastructure, early warning systems, and nature-based solutions.
2. Rapid operationalisation of the Loss and Damage Fund: While formally established at COP28, its full operationalisation and direct disbursements are still pending. The international banking community can play a vital role in advocating for and facilitating the rapid capitalisation and efficient disbursement mechanisms of this fund, which is critical for unavoidable losses. The private sector can also play an important role in this regard through corporate social responsibility (CSR) initiatives.
3. Innovative financial instruments: We need support in developing and accessing innovative instruments like green bonds, climate-resilient debt instruments, and debt-for-climate swaps that can free up fiscal space for climate action.

We are seeking partners who recognise that investing in Pakistan’s climate resilience and trade stability is an investment in global economic stability.

SA: A range of reconstruction funds, both climate-related and not, already exist, both to help countries and individual small businesses recover. What are the main challenges that hinder Pakistan’s access to these funds, leading to a $340 billion climate finance gap for Pakistan by 2030?

MF: The estimated $340 billion climate finance gap for Pakistan by 2030 is a stark indicator of the systemic challenges in accessing existing funds. Several key factors hinder our access:

1. Conditionalities and bureaucracy: Many existing funds come with complex application processes, stringent conditionalities, and lengthy disbursement timelines that are ill-suited for the urgency of climate disasters and long-term adaptation. This bureaucratic burden often overwhelms the administrative capacities of developing nations.
2. Preference for loans over grants: As highlighted, a significant portion of available climate finance is structured as loans, not grants. For countries like Pakistan, already managing a substantial debt portfolio, taking on more debt for climate adaptation is unsustainable and counterproductive, pushing us further into a cycle of debt and vulnerability.
3. Insufficient scale of funds: Even collectively, the existing funds are simply not commensurate with the scale of the climate crisis. The $100 billion annual climate finance pledge by developed nations remains unfulfilled and is widely acknowledged as insufficient for global needs.

These challenges and others collectively create a bottleneck, preventing critical funds from reaching the front lines of the climate crisis and widening the finance gap for nations like Pakistan.

SA: Some are alleging that the floods are at least partially caused by India’s control of dams releasing excess water in Pakistan, with Punjab’s federal minister Ahsan Iqbal calling it “the worst example of water aggression”. How will the flooding affect the relationship between Pakistan and India and regional security as a whole?

MF: The devastating floods are a result of multiple reasons, including unprecedented monsoon rains, Pakistan’s location and unique environment, a change in the world’s entire climate in recent years, but also India’s violation of the Indus Waters Treaty.

Water is a shared resource, and its equitable management is fundamental to regional stability and human security. Pakistan has consistently advocated for dialogue based on international law and the principles of the Indus Waters Treaty, signed in 1960 with the help of the World Bank, which governs the sharing of transboundary rivers between our two nations.

Any actions that impact the natural flow of these shared waters, particularly the unannounced release of excess water, are a matter of serious concern. Such actions can exacerbate flood devastation and directly threaten the lives and livelihoods of millions. This naturally creates tensions and complicates regional relationships.

Pakistan remains committed to peaceful dialogue and upholding international agreements. We believe that addressing transboundary water issues, especially in the context of escalating climate change, requires transparency, cooperation, and adherence to established treaties. The international community has a vital role to play in supporting dialogue and ensuring that water resources are managed responsibly and equitably, thereby contributing to regional stability rather than allowing climate impacts to become a source of further conflict.

SA: How wide-reaching will the effect of the flooding be on Pakistan’s agricultural and commodities sector, and on its overall capacity for exports?

MF: Unfortunately, Pakistan is on the wrong side of climate change impact. The floods will have a wide-reaching and profound effect.

Agriculture is the backbone of our economy, contributing significantly to GDP and employment, and a major source of exports. The floods have inundated vast tracts of fertile land, and are delaying the planting of future crops such as cotton, rice and corn.

The destruction of crops will inevitably lead to domestic commodity shortages, driving up food prices and potentially necessitating increased imports. This price volatility impacts both consumers and the broader economy.

Our capacity for agricultural exports will be severely curtailed in the short to medium term. This not only impacts our foreign exchange earnings but also affects our standing in global markets. The damage to processing units and supply chains further compounds this challenge.

Beyond immediate losses, the floods cause long-term damage to agricultural infrastructure, including irrigation systems, and can lead to soil degradation. Rebuilding this resilience requires substantial investment in climate-smart agriculture, drought/flood-resistant crops, and modern irrigation techniques. There are instances where flooding increases the soil fertility in plain areas. However, technological support is required to achieve optimum production.

The impact on agriculture creates a food security challenge and a direct hit to our export potential, underscoring the urgent need for resilient agricultural practices, investment and international support.

SA: How can industrialised Western countries, which bear much of the blame for the climate change that caused the floods in the first place, best help? Is the focus better placed on prevention of further flooding, emergency recovery and reconstruction, or the global fight against climate change?

MF: Pakistan contributes less than 1% of global greenhouse gas emissions, yet is adversely affected by climate change – we are among the top 10 most affected countries in the world. Sadly, impacts like flooding will only intensify in the future.

Industrialised Western countries bear the historical responsibility for the bulk of greenhouse gas emissions, so they have a critical role to play. The focus should not be on an “either/or” but on a comprehensive, integrated approach that addresses all three areas simultaneously, with an emphasis on equitable finance.

First of all, developed nations must drastically accelerate their own emissions reductions, transitioning rapidly to renewable energy sources and investing in green technologies. This is the ultimate prevention. In Pakistan, solar power contributes to over 25% of the country’s total electricity production today, which places us in an elite group of nations – we urge others to follow suit.

Alongside mitigation, significant investment in adaptation is crucial. This means providing grants and concessional finance for vulnerable nations to build climate-resilient infrastructure, implement robust early warning systems and develop climate-smart agriculture. 

This proactive approach saves lives and minimises future economic losses.

When prevention and adaptation efforts are overwhelmed, as they are in Pakistan, support for emergency recovery and reconstruction is vital. This is where the Loss and Damage Fund becomes critical. Developed nations must ensure the fund’s rapid and full capitalisation with grant-based resources to address the unavoidable impacts that have already occurred.

Moreover, multinational corporations wield substantial influence in addressing climate change through their extensive financial and operational capacities across borders. They accelerate the shift to renewable energy by scaling solar, wind, and hydroelectric projects that power vast industrial and digital infrastructures, thereby slashing global greenhouse gas outputs. 

They should invest heavily in emerging technologies such as carbon capture, utilisation, and storage, while funding resilient infrastructure in vulnerable regions, enabling broader systemic change and supporting international climate goals through coordinated, large-scale action.

Ultimately, climate needs to be the number one priority on the global agenda, especially at events like the upcoming COP30. Equitable climate finance that empowers vulnerable nations to lead their own climate action – both adaptation and mitigation – while providing support for unavoidable losses, also ensures global stability and a shared, sustainable future.

SA: Overall, how is the flooding affecting international stability and global supply chains?

MF: The flooding in Pakistan, like other escalating climate disasters worldwide, has tangible and growing ripple effects on international stability and global supply chains.

For example, Pakistan is a significant producer and exporter of various commodities, particularly agricultural products like rice and cotton, and textiles. The destruction of crops, damage to infrastructure, and disruption of logistics networks directly impact global supply chains. This can lead to commodity shortages, price volatility in international markets, and delays for manufacturers relying on Pakistani inputs. This vulnerability highlights the fragility of globally interconnected supply chains in the face of climate shocks.

The immense economic losses incurred by Pakistan and other climate-vulnerable nations also contribute to global economic instability. When a significant economy like Pakistan’s faces such a setback, it impacts trade partners, foreign investors, and global financial markets. The need for increased imports and reduced exports affects global trade balances.

Large-scale displacement and humanitarian crises, as seen in Pakistan, can create regional instability and contribute to migration pressures. While the immediate focus is internal, prolonged displacement and lack of recovery can have broader implications for neighbouring countries and international aid systems.

The experience in Pakistan serves as a stark warning to the international community. As climate change intensifies, such disruptions will become more frequent and severe globally. Investing in resilience now, particularly through equitable climate finance, is a form of self-preservation for the entire international system, safeguarding global stability and the smooth functioning of global supply chains.