Asia-Pacific ‘highly exposed’ to climate change risks; Singapore the sole exception: Fitch
SOUTH and South-east Asian economies are the most exposed to flooding risks in the Asia-Pacific, particularly nations with lower gross domestic product (GDP) per capita as well as weaker governance and infrastructure preparedness.
In a report on Friday (Jan 5), Fitch Ratings said such nations are more likely to come under negative rating pressure as they are more vulnerable to physical risks, given their weaker capacity to adapt.
Flooding, in particular, is a key vulnerability, with the agency underscoring these nations as “highly exposed” to physical risks from climate change.
Vietnam stood out as being highly prone to flooding risks, while the Philippines is the most exposed to risks from storms such as tropical cyclones.
“The materialisation of climate risks in these regions could lead to significant economic losses. The resettlement of people and buildings from flood-prone areas could give rise to significant fiscal costs for some sovereigns, in particular, Vietnam,” noted the ratings agency.
“These costs could be a negative rating driver for some sovereigns, particularly for those with limited fiscal space.”
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Fitch also noted that apart from being prone to coastal flooding, Vietnam is also among the most exposed to river flooding risks, as numerous river systems run across the country.
The agency identified flooding as one of the most common types of natural disasters, be it coastal or inland.
“Most South-east Asian countries are island economies or have long coastlines, leaving them highly exposed to the risk of coastal flooding,” it noted.
Inland flooding occurs mostly due to the widening of rivers or streams due to heavy precipitation or the melting of glaciers, among other factors.
In particular, Fitch highlighted that fiscal buffers are more “constrained” for most economies in South and South-east Asia, as their government debt tends to stay close to, or above, the peer median.
This is coupled with weak revenue mobilisation, which could drive negative ratings as climate risks become more severe.
One such instance would be additional government expenditure due to dislocation and rebuilding costs resulting from flooding, which could in turn add to sovereigns’ fiscal deficits and government debt.
Both factors are included in Fitch’s sovereign rating model, which accounts for fiscal deficit-to-GDP and general government debt-GDP ratios.
Singapore, however, remains the least at risk of a negative rating action from physical risks resulting from climate change.
The city-state had close to zero, or the lowest risk, among its South-east Asian peers listed on Fitch’s 2022 Flood Risk Index for the region.
It also possessed the strongest infrastructure coping capacity among its South and South-east Asian counterparts, followed by Maldives, Thailand and Malaysia.
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