The International Monetary Fund has published its staff report on Pakistan's third review under the Extended Fund Facility and second review under the Resilience and Sustainability Facility, IMF Country Report No. 26/101, dated 23 April 2026 and released on 14 May. The RSF is the IMF's climate-focused lending window, which provides longer-term financing tied to reforms that build resilience to climate shocks.
The report confirms that Pakistan completed two reform measures under the RSF: the State Bank of Pakistan issued guidelines on climate-related financial risk for banks, and the Securities and Exchange Commission of Pakistan issued guidelines on climate risk and opportunity disclosure for companies. Those measures were conditions for the second review.
Reforms due next
For the third RSF review, the key measures due by the end of August 2026 are a federal-provincial framework for disaster risk financing and revised procedures for public investment that apply at least a 30% climate weighting, according to the IMF report. The RSF reform areas more broadly cover disaster resilience, efficient water use, federal and provincial coordination on disaster response, climate risk disclosure by banks and firms and mitigation commitments.
Pakistan's RSF arrangement was approved in May 2025, alongside the first review of its $7 billion Extended Fund Facility. At that time, the IMF said the RSF would provide access to about $1.4 billion over the life of the arrangement, disbursed as reforms are completed.
Why climate reforms are part of an IMF programme
Pakistan is among the countries most exposed to climate hazards. Floods in 2022 covered large parts of Sindh and Balochistan and caused damages and losses estimated at more than $30 billion by a post-disaster needs assessment led by the government with the World Bank and other partners. Monsoon floods in 2025 again killed hundreds of people and damaged infrastructure, particularly in Punjab and Khyber Pakhtunkhwa. Heatwaves regularly push temperatures above 45°C in parts of the country.
Disasters on this scale hit public finances directly, through relief and reconstruction spending and through lower tax revenue. They also hit the balance of payments when crops are destroyed and food or fuel imports increase. The IMF's rationale for the RSF is that building resilience reduces the risk that future disasters derail macroeconomic stability.
Disaster risk financing
A disaster risk financing framework sets out in advance how the government will pay for disaster response, rather than relying on emergency budget reallocations after the event. Typical instruments include contingency budget lines, reserve funds, contingent credit lines from development banks, insurance and catastrophe bonds. The framework must also define how costs are shared between the federal government and the provinces, which have primary responsibility for disaster management under Pakistan's constitution.
For Pakistan, which has very low insurance penetration, the protection gap is large. Swiss Re and other insurers have noted that the vast majority of disaster losses in emerging markets are uninsured.
Climate weighting in public investment
The requirement for revised public investment procedures with at least a 30% climate weighting means that climate resilience and mitigation considerations would count for a significant share of the criteria used to approve and prioritise public projects. In practice, that could affect how infrastructure such as roads, dams, power lines and irrigation canals is designed, sited and selected.
Water use
Water is a central theme of the RSF. Pakistan's agriculture uses the great majority of the country's water through the Indus canal system, and water charges have historically been very low, which offers little incentive to conserve. The RSF reform agenda includes steps towards more efficient water use and pricing. Water policy affects energy because the same reservoirs supply irrigation and hydropower, and because dam releases are scheduled mainly around irrigation needs. When irrigation demand drops, as happened in April 2026 after rains, less water passes through turbines and hydropower output falls.
Bank supervision and climate risk
The State Bank's guidelines on climate-related financial risk ask banks to identify, measure and manage their exposure to physical risks, such as floods damaging borrowers' assets, and transition risks, such as policy changes affecting carbon-intensive sectors. Central banks in many countries have adopted similar approaches, often drawing on the work of the Network for Greening the Financial System. For Pakistani banks, agricultural lending in flood-prone areas and loans to the power sector are among the exposures most relevant to these assessments.
Energy sector links
Climate reforms intersect with Pakistan's energy sector in several ways. The power sector is heavily exposed to climate risks: hydropower depends on glacier melt and monsoon rains in the Indus basin, floods damage transmission and distribution networks, and heatwaves push up demand. The 2022 floods damaged power infrastructure across Sindh and Balochistan, and recovery was still incomplete when the 2025 monsoon began.
Pakistan's energy policy is also central to the EFF itself, which includes commitments on electricity and gas tariffs, reducing the power sector's circular debt and improving the performance of distribution companies. In April 2026, the government confirmed up to seven hours of daily load management as an early heatwave coincided with a shortage of imported LNG linked to the Middle East crisis and lower hydropower output.
Climate risk disclosure guidelines for banks and listed companies also affect energy investment. Banks will need to assess climate-related risks in their lending, including to power producers and energy-intensive industries. Listed energy companies will be expected to disclose climate risks and opportunities.
The financing gap
Pakistan's climate finance needs are much larger than the RSF. The World Bank's Country Climate and Development Report for Pakistan, published in 2022, set out large investment needs for resilience and a lower-carbon path. International climate finance, including from the Green Climate Fund, multilateral development banks and bilateral donors, has fallen well short of that. The Fund for responding to Loss and Damage, created at COP27 when Pakistan chaired the G77 negotiating group, has been setting up its procedures and has a call for funding proposals under way.
What to watch
Key items include whether Pakistan meets the end-August deadline for the disaster risk financing framework and the public investment procedures, the IMF's next review mission later in 2026, the 2026 monsoon season and the level of climate finance Pakistan secures at COP31.