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Several Asia-Pacific (APAC) sovereigns are facing substantial exposure to the physical risks of climate change, with limited capacity for effective adaptation, warns Fitch Ratings.
According to Fitch Ratings, the vulnerability is particularly pronounced among nations with lower income per capita, weaker governance, and less prepared infrastructure. While the prospect of international financing for adaptation and green transitions exists, Fitch suggests that this might only cover a fraction of the overall funding needs. Fitch identifies populations and economies in South and Southeast Asia as being among the most exposed to flooding risks in the APAC region. Vietnam emerges as notably susceptible to flooding, and the Philippines faces heightened risks associated with storms like tropical cyclones. In South Asia, Bangladesh is flagged as the nation most prone to flooding risks. The realization of climate risks in these regions carries the potential for significant economic losses. Costs associated with relocating populations from flood-prone areas and rebuilding after flooding events could impose substantial fiscal burdens on these sovereigns. Compounding the challenge, fiscal buffers are constrained for many economies in South and Southeast Asia. Government debt levels near or surpass the peer median, coupled with weak revenue mobilization, leave limited room for absorbing such fiscal shocks. Fitch suggests that as climate risks intensify, this fiscal vulnerability could serve as a negative driver for credit ratings. Fitch Ratings acknowledges that adaptation efforts might be hampered by constrained fiscal capacities. The rating agency underscores the potential role of international financing to fill funding gaps. However, it cautions that while such financing could be instrumental, it is likely to address only a fraction of the comprehensive funding requirements. The report highlights the need for proactive climate resilience measures in the face of rising risks. As climate-related challenges become more severe, sovereigns may face pressure on their credit ratings. The limited fiscal manoeuvrability and high exposure to climate risks place several APAC nations on a precarious footing. The ability to navigate these challenges effectively and secure adequate financing for adaptation efforts will play a crucial role in determining the creditworthiness of these sovereigns in the coming years. (ANI)
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