Finance Division introduces new climate budget form

May 21, 2025 (MLN): As part of an enhanced climate-focused budgeting initiative, the Finance Division has introduced a new form, Form-III C, continuing the Budget Call Circular (BCC) for 2025–26.

This form is part of a revised methodology aimed at capturing the climate-relevant components of subsidies, strengthening the integration of climate considerations across all federal budget allocations.

Climate budgeting in Pakistan began in FY 2023–24 with the classification of federal expenditures into three key categories: Adaptation, Mitigation, and Transition.

Initially, this climate tagging was limited to the Running of Civil Government (RoCG) and the Public Sector Development Programme (PSDP).

The current effort expands this scope to include grants and subsidies, major areas of public spending, to improve the identification and quantification of climate-related expenditures.

Subsidies, which form a significant share of the federal budget, are broadly defined as financial support from the government to consumers or producers, either by supplementing income or reducing costs.

From FY 2025–26 onward, all such subsidies will be assessed and tagged based on their relevance to climate objectives, according to the notification issued by the Government of Pakistan.

Principal Accounting Officers (PAOs) have been instructed to complete and submit Form-III C by May 30, 2025, with the Finance Division providing necessary technical support to ensure consistency and accuracy in reporting.

This step aligns with Pakistan’s commitments under the IMF’s Extended Fund Facility (EFF), which includes climate tagging as a performance benchmark.

Form-III C requires detailed departmental input, such as identifying cost centres, classifying sectors (e.g., energy, transport, agriculture, infrastructure), and describing the nature of the subsidy.

Subsidies will be categorized based on their climate relevance in terms of adaptation or mitigation.

Adaptation subsidies cover areas like agriculture and livestock research, technology, and risk management for example, subsidies for crop loan insurance schemes.

It also includes infrastructure such as green roofs and walls, climate-resilient buildings, smart grids, and energy infrastructure—for instance, subsidies for solar panels or disaster-resilient constructions.

Mitigation subsidies focus on clean energy technologies, energy conservation, power efficiency, hydropower, renewable energy, green growth, fiscal reforms in the energy sector, and electricity transmission and distribution.

Examples include subsidies for hydropower projects and power transmission.

The transport sector also falls under mitigation, covering general and urban transportation, such as subsidies for mass transit systems aimed at reducing reliance on individual vehicles.

For a broader classification and detailed list of areas related to climate and environment, reference is made to Form III-A in the BCC.

Subsidies will be tagged into five categories based on their climate impact. Category A (Directly Favorable) includes expenditures that tangibly improve climate or environmental outcomes.

Category B (Indirectly Favorable) covers subsidies not specifically targeted at climate goals but likely to contribute positively.

Category C (Neutral or Not Assessed) refers to expenditures that are unlikely to have a significant climate impact, have not been assessed in this iteration, or whose impact cannot be determined due to lack of data or current scientific knowledge.

Category D (Mixed) includes subsidies with both positive and negative effects that cannot be clearly separated.

Category E (Potentially Unfavorable) applies to subsidies that may worsen environmental performance or encourage behavior contrary to climate objectives.

An example of potentially unfavorable subsidies might include those that increase environmental pollution, whereas subsidies promoting electric vehicles would be considered favorable for the environment.

This structured approach will enable the government to effectively quantify and report climate-related public spending, particularly in subsidies, enhancing transparency and alignment with climate goals.

The deadline for submission of Form-III C remains May 30, 2025.

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