Pakistan’s economy in 2025 is increasingly defined by the collision of climate risk and structural fragility. In June‐July 2025, flash floods triggered by heavy pre‑monsoon rains claimed over 250 lives nationwide and submerged major cities such as Lahore and Rawalpindi, causing estimated economic losses of US $14.8 billion in damages and $15.2 billion in productivity losses. The Climate Risk Index ranked Pakistan as the world’s most climate‑affected country based on 2022 data, highlighting the existential economic threat facing the nation.
Pakistan ranked the world’s most climate-affected country with $14.8 billion in damages and $15.2 billion in productivity losses from the 2025 floods.
Agriculture contributes around 7 percent of GDP and employs roughly 40 percent of the labour force, yet is one of the sectors most exposed to climate shocks. Experts project an 8-10 percent reduction in overall agricultural productivity by 2040, with wheat and rice yields falling by up to 50 percent by 2050, equating to potential losses of $19.5. Glacial melting and irregular rainfall patterns exacerbate both drought and flood risk, eroding rural livelihoods and food security.
By mid‑century, climate change could shrink Pakistan’s GDP by 18-20 percent, with annual economic damage estimated at up to $38 billion. The rapidly intensifying 2025 India-Pakistan heat wave, with temperatures exceeding 40 °C and peaking at 48 °C in June, further disrupted labour productivity and medical services in urban and rural regions alike.
The emerging Integrated Development Goals (IDGs), which build upon the earlier SDG framework, offer a vital lens for policy: IDG 1 (Poverty eradication), IDG 9 (Resilient infrastructure), and IDG 13 (Climate action) converge directly in Pakistan’s national climate‑economic planning. Pakistan’s SDG performance, reflected in an index score of just 56.97 and a global rank of 140, signals urgent recalibration.
Policy efforts in early 2025 reflect mixed progress. The government’s Uraan Pakistan plan (2024-29) sets sustainable growth, climate resilience, and green industrialisation among its five priority pillars, with early signs including reduced inflation, fiscal rebalancing, and stronger FDI inflows. FDI rose 20 percent in early FY 2025, remittances topped $35 billion, and equity markets performed strongly. Meanwhile, the World Bank unveiled a $20 billion partnership framework from 2026 onwards focused on clean energy, water resilience, and agriculture innovations. Finance gaps persist.
Agricultural productivity could drop 8-10% by 2040, with wheat and rice yields declining by up to 50% by 2050.
Pakistan has received less than $1 billion from public global climate funds over the past decades, despite bearing enormous losses in 2022 and 2025. Officials at COP29 called for grants over loans and debt relief to avoid compounding financial fragility. The 4RF (Resilient Recovery, Rehabilitation & Reconstruction Framework) and a National Adaptation Plan are underway, but implementation remains uneven.
To arrest economic erosion, Pakistan must deepen climate‑sensitive investment. Nature‑based interventions, wetland rehabilitation, reforestation, soil conservation, are not just mitigation but fiscal protection. Sri Lanka’s wetlands, for example, absorb nearly 39 percent of floodwaters; similar basin‑scale restoration projects could reduce flood losses in Pakistan significantly.
Climate-smart agriculture, drought‑tolerant seeds, efficient irrigation, index insurance must be scaled to protect rural incomes and food systems. Meanwhile, off‑grid renewable energy systems and energy resilience in health and education infrastructure are critical to reduce heat shock damages and improve adaptive capacity.
Despite heavy losses, Pakistan has received less than $1 billion in global climate funds over the decades.
Coordinating IDG‑aligned policy, international grant finance, green infrastructure, and community‑led adaptation offers Pakistan a path toward climate‑compatible growth. If treated as an economic imperative rather than a secondary environmental concern, climate resilience can underpin long‑term macroeconomic stabilization under Uraan’s framework. In 2025, Pakistan stands at a decisive inflection point. Avoiding climate action is no longer a development choice, it is an economic liability. Mobilising finance, institutional reform, and translating the IDGs into national implementation is not optional, it is urgent.
Disclaimer: The opinions expressed in this article are solely those of the author. They do not represent the views, beliefs, or policies of the Stratheia.
