Sovereign ratings may be affected by climate change, warns Moody’s
16/05/2018 10:33

Moody's Investors Service on Tuesday updated its assessment of the susceptibility of sovereigns' credit quality to climate change risk.

Moody's added nine countries to the list of most susceptible sovereign credits. They include: Cameroon (B2 stable), Cote d'Ivoire (Ba3 stable), Gabon (B3 negative), Mauritius (Baa1 stable), Philippines (Baa2 stable), Rwanda (B2 stable), Swaziland (B2 negative), Tajikistan (B3 stable) and Tanzania (B1 negative). Five of these countries are newly-rated by Moody's since the previous global analysis of sovereigns' relative exposure to climate change in late 2016. Three are no longer considered to be among the most susceptible: Angola (B3 stable), Armenia (B1 positive) and Bolivia (Ba3 stable).

Of the 36 sovereigns whose credit quality is identified as most susceptible to climate change, 17 are in Africa, 12 in Asia Pacific. A common characteristic among the most susceptible sovereigns is their economic reliance on the agricultural sector, which is typically not irrigated and is thus rain-fed. In addition, undiversified economies are disproportionately affected by the increasing frequency and/or severity of natural disasters impacting growth and causing lasting damage to infrastructure. Moody's estimates of potential growth and sovereigns' economic strength take into account the negative impact of repeated natural disasters.

While the majority of countries identified as the most susceptible have low levels of resilience to climate change risks, access to multilateral financial support—whether loans or aid—can bolster the resilience of sovereigns' credit quality. That has been the case for many of the countries whose credit profile has been identified as most susceptible, somewhat limiting the impact of natural disasters on fiscal strength.