How do climate disasters impact the debt of developing countries?

Climate disasters exacerbate existing debt loads and financing costs for developing countries, potentially leading to a 'vicious cycle' that makes it harder for them to secure funds for protection and transition projects.

Which countries are most at risk from climate change according to Fitch Ratings?

Fitch Ratings analysis suggests that small countries prone to extreme weather and fossil-fuel exporters may face the highest sovereign risks from climate change in coming years.

What is the connection between extreme weather and sovereign credit risk?

Research indicates a strong association between countries' exposure to tropical storms and a higher likelihood of having a speculative sovereign rating, as extreme weather shocks make debt servicing more difficult.

Home / Environment / Climate Disasters Trigger Debt Crisis for Poorest

Climate Disasters Trigger Debt Crisis for Poorest

9 Feb

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Summary

Least polluting nations face climate disaster vulnerability.
Developing countries risk a debt-finance 'vicious cycle'.
Climate impacts worsen sovereign credit risks for nations.

Climate Disasters Trigger Debt Crisis for Poorest

Nations contributing least to pollution are disproportionately vulnerable to climate disasters, facing significant obstacles in securing funds for self-protection. As climate impacts intensify, developing countries confront a potential 'vicious cycle' due to mounting debt and high financing costs.

Fitch Ratings' analysis highlights that countries susceptible to extreme weather and those reliant on fossil fuels may encounter the highest sovereign risks associated with climate change. A new tool, Climate Vulnerability Signals, assesses sovereign credit on a 100-point scale, considering physical and transition risks.

Of the 119 countries evaluated through 2050, 60 showed scores indicating a risk of credit downgrade. This would impede their ability to finance crucial climate resilience projects and accelerate the energy transition.