Pakistan's parched future: bonds to bridge the water funding chasm

Business Recorder

6 days ago

As the monsoons arrive, once again, Pakistan is facing a water crisis, shifting from drought-like scenarios to the threat of a flood. The seasonal threat is no longer creeping but ferocious. As seasonal relief in monsoon showers may seem to provide, the bitter truth remains the same: our water security is falling, drop after drop, each passing year.
Where once favoured with powerful rivers and glacial flows, present-day Pakistan is a water-scarce nation. Water availability on a head-per-capita basis has crashed down to 800–1,017 cubic meters from 5,260 in 1951. By 2035, we could dip below 500–660 cubic meters, a threshold of pure scarcity, while UNDP predicts extreme scarcity below 500 cubic meters in 2025.
This is no future prospect; it is present in the dried-out canals in Punjab, Sindh's saline groundwater, drop in water tables in Balochistan, and failing supply lines in main cities like Karachi and Lahore. But behind the green disaster is the less spoken but no less lethal, twin disaster: the disparity between what we need to pay for water security and what we pay.
The cost of inaction
Pakistan's water economy is bleeding. Analyst estimates and official sources put inefficiencies, climate-related disasters, and old infrastructure at Rs3-4 trillion every year, about 3–4 percent of GDP. The losses occur due to floods, droughts, inefficient irrigation, and crumbling infrastructure. Agriculture, which accounts for more than 90 percent of usable water, loses on conveyance estimated at between 40–60 percent, endangering both productivity and rural livelihoods.
Consider, for example, a rural Punjabi smallholder, Abdul Rehman. During the lean season, his wheat crop shriveled for lack of water as irrigation canals dried up, prompting him to sell livestock to make ends meet. Just as in lower Sindh, Ghulam Mustafa encountered an almost identical ordeal in May-June this year; he was waiting for water to begin kharif planting amidst water scarcity. The Indus reduced significantly by the time it flowed to his distributary because of downstream restrains added to existing upstream problems, slowing down and dwindling the stream. By the time water flowed back, as well, it was in vain, the sowing period was gone and his debts increased.
Such incidents are not unique. Along the coasts in Sindh, advancing seawater engulfs arable lands as flows of freshwater fail to trickle down to the delta, making previously fertile patches near Thatta and Sujawal desolate areas. Across central and southern Punjab, numerous Rabi growers watched their wheat crop drought for insufficient final irrigations in February just months before harvesting, owing to paucity of water. Across cities such as Karachi, Lahore, Multan, and Quetta, damaged water infrastructure compelled families to rely on costly and sometimes hazardous tanker supplies.
The World Bank warned that unabated disruptions would shave an estimated 6 percent of the GDP until mid-decade, long-term estimates could be 10 percent until 2050, or even 18-20 percent because of broader climate damage. The flood damage in 2022 alone was estimated at Rs3.2 trillion, sweeping away homes, crops, and livelihoods. Yet investment hasn't caught up.
Why the gap persists
The 2018 National Water Policy (NWP) had set a humble target: 10 percent of the Public Sector Development Programme (PSDP) should be for water in 2019, increasing to 20 percent in 2030. We still aren't achieving even the baseline. Present federal PSDP allocations are around 9.5 percent, national water expenditures, across federal and provincial governments, are a mere Rs380–400 billion in FY2025–26, less than 0.3 percent of GDP. Although mega-projects such as Mohmand Dam (Rs35.7 billion) and Diamer-Bhasha (Rs25 billion) are separately funded, the aggregate amount remains inadequate.
Provincial budgets are no different. Punjab allocated Rs38 billion for irrigation, Sindh Rs31 billion, KP Rs25.1 billion, and Balochistan Rs32 billion (inclusive of foreign-aided schemes). The figures are humble for a sector for which provinces are the sole operator for canal operations, water distribution, and urban supply. Much of the gap lies in the larger fiscal constraint in Pakistan: debt servicing accounts for more than 20 percent of the federal budget. With IMF austerity, restricted fiscal space, and increasing rivalry from defense, subsidies, and social protection, long-gestation infrastructure initiatives end up on the casualty list.
The federal PSDP for water for the next financial year is down by more than 25 percent to Rs185 billion in FY2024–25. Dams receive Rs63.3 billion, canals Rs39.3 billion—the figures 10–15 percent below previous years in real terms. This reduction threatens to trap us in a vicious cycle of postponed upkeep and exposure.
Enter: Pakistan Water Bonds
In this dismal fiscal context, one idea offers a way out: Water Bonds. These are structured financial instruments that raise dedicated capital for water-related infrastructure and services, independent of the donor cycle or the vagaries of annual PSDP allocations. They are not untested. In 2021, WAPDA raised USD500 million through a Green Eurobond, oversubscribed six times. More recently, the Parwaaz Green Action Bond raised Rs1 billion with a strong AA–rating, while the federal government's Green Sukuk in May 2025 brought in Rs32 billion, testifying to strong investor appetite.
Pakistan's Islamic finance market, which is estimated to hold Rs7 trillion in deposits (close to 20 percent of the banking network), is waiting for innovation. The Water Bonds, in the name of green sukuks, can exploit this resource pool and provide 10–12 percent yields while conforming to ethical investment paradigms. They can be traded on home exchanges and can appeal to pension funds, insurance, and even microfinance institutions.
The diaspora dividend
Arguably, the most promising and emotionally resonant source of capital lies in the Pakistani diaspora. Remittances totaled USD35 billion in FY2025, and the Roshan Digital Account (RDA) mobilized over USD10 billion in just a few years. Overseas Pakistanis have shown that they are willing to invest if credible, transparent, and purpose-driven instruments exist.
Green Diaspora Water Sukuk issued in dollars, pounds, or euros would potentially raise USD250–500 million if only 2–3 percent of RDA investors buy in. Such bonds could fund filtration plants, desalination facilities, rainwater harvesting, and pipeline improvements in the very towns where their loved ones live. Picture a Pakistani doctor in the United States funding a desalination plant back in his hometown in Sindh—it would not only provide him 6–8 percent returns but ensure that future generations also drink clean water. With sovereign backing, ESG reporting, and zakat-associated functionalities, such bonds could blend moral responsibility with financial sense.
These diaspora flows could unlock matching contributions from development institutions such as the World Bank, the Islamic Development Bank, or the IFC, much like ADB's recentUSD500 million commitment for water resilience.
Making it work: a phased roadmap
But it won't happen without a phased, strategic roadmap. A Rs100 billion pilot bond in 2025 would aim for low-hanging fruit: wastewater treatment (national efficiency <1 percent) and flood irrigation and unlined channels (up to 60 percent loss of applied water). In 2026–27, scaling could be Rs 560 billion for storage, urban networks, and flood control. By 2030, an additional Rs400–580 billion could be spent on precision agriculture, desalination, and AI-based metering. These initiatives would need to be aligned with the existing water-sector project in the PSDP, worth Rs424 billion but stalled because not adequately funded.
Transparency, not just tranches
Naturally, finance alone is not a panacea. Diaspora and private investors need reassurance. Transparency must be ingrained through blockchain-powered audit trails, third-party audits, and exchange listing on the Pakistan Stock Exchange. Volumetric water pricing against cross-subsidies, sovereign guarantees, and municipal-level credit enhancements will be imperative. The Council of Common Interests must be empowered to offer interprovincial oversight and break political impasses. Although Pakistan's credit rating is a concern, Fitch's upgrade in the near term and IMF criteria hold promise. The OECD's Asia Capital Markets Report 2025 points to unprecedented growth in sustainable bonds but cites challenges in new markets such as Pakistan, such as regulatory barriers and investor awareness, underlining the imperative for sound frameworks.
A bond for our future
Our water shortage is reality. But so is our capacity for innovation. We have capital. We have policy frameworks. What we lack is urgency and vision. Water Bonds provide something beyond dollars. They provide a trustworthy, long-term financing tool to pay for the singular most important determinant of our survival: water.
Let's not wait for the next flood, the next drought to teach us lessons we know all too well. The moment to act is today. Let's construct our water future, bond for bond, drop for drop.
Copyright Business Recorder, 2025