Why Climate Change Vulnerability Is Bad for Sovereign Credit Ratings

By Serhan Cevik and João Tovar Jalles عربي, 中文, Español, Français, 日本語, Português, Русский  Climate change has made the world a riskier place. The destruction wrought by heatwaves, droughts, hurricanes, and coastal flooding doesn’t stop with the toll on human lives and livelihoods—it can also have deep consequences for a country’s finances. Recent IMF staff research has found that a country’s vulnerability or resilience to climate change can have a direct effect on its creditworthiness, its costs of borrowing, and, ultimately, the likelihood it might default on its sovereign debt. Financial risks created by climate change are felt more acutely by developing economies… The economic consequences of climate change have been known for years, but research on how climate change affects sovereign risk has been limited. These findings provide evidence on the relationship between climate change and sovereign credit ratings. The research builds on similar analysis that, for the first time, links climate change vulnerability to sovereign default risk. Our research has similarly found a connection between climate shocks and sovereign bond yields. One recurring theme amid all these findings is that financial risks created by climate change are felt more acutely by developing economies, especially those that are not adequately prepared, including because of the … Continue reading Why Climate Change Vulnerability Is Bad for Sovereign Credit Ratings