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Today: Jun 13, 2024

Asia-Pacific sovereigns’ credit ratings at risk due to flooding, warns Fitch.

1 min read

Key Points:

  • Countries in south and southeast Asia are at the highest risk of flooding in the Asia-Pacific region, according to Fitch Ratings.
  • Sovereigns with weaker adaptation capacities are likely to face negative rating pressure due to flooding risks.
  • Vietnam is the most at risk of flooding in southeast Asia, followed by the Philippines and Bangladesh.

Countries in south and southeast Asia are facing the highest risk of flooding in the Asia-Pacific region, and sovereigns with weaker capacities to adapt to these risks may face negative credit rating downgrades, warned Fitch Ratings. Flooding, which is one of the most common natural disasters, can result in significant economic losses and degraded ratings for some Asia-Pacific sovereigns, the credit rating agency stated in a report. The report highlighted that sovereigns that are more vulnerable to physical risks and have weak adaptive capacities are likely to face negative rating pressures. This puts many sovereigns in south and southeast Asia at risk of negative rating actions, with Singapore being the exception.

Most southeast Asian countries are island economies or have long coastlines, leaving them highly exposed to coastal flooding. Rising sea levels have been increasing the vulnerability of low-lying economies and coastal ecosystems in the region. Sea levels in the Philippines have risen at a faster rate compared to the global average, making the country one of the most exposed to coastal flooding in southeast Asia. Vietnam, on the other hand, is the most at risk of flooding in southeast Asia, according to data from the Index for Risk Management. Aside from coastal flooding, Vietnam is also highly exposed to river flooding due to its multiple river systems.

In south Asia, Bangladesh has the highest risk of flooding due to its large rivers and low average elevation. Fitch Ratings predicts that the vulnerability of populations in south and southeast Asia to flooding risks is likely to increase due to anticipated high economic growth and increasing urbanization in the region.

While international financing for adaptation and green transition purposes may help fill funding gaps for some sovereigns, it is expected to be a small portion of the overall funding needs. Vietnam, the Philippines, Indonesia, and Bangladesh have received funding from the Green Climate Fund to support projects aiming at lower emissions and building greater climate resilience.

Overall, the report emphasizes the need for Asia-Pacific sovereigns to enhance their adaptation capacities to mitigate the risks of flooding and avoid negative rating actions. Failure to adapt to these risks could result in credit downgrades and increased economic vulnerabilities for these countries.