APAC sovereigns have limited capacity to adapt to flooding risks
Source: Middle East Insurance Review | Feb 2024
Several sovereigns in the Asia-Pacific region are highly exposed to physical risks from climate change, however, their adaptation capacity to these risks is limited, according to Fitch Ratings.
A non-rating action commentary ‘South and Southeast Asian Sovereigns Exposed to Flooding Risks’ by the rating agency found that this is particularly true with those with lower income per capita and weaker governance and infrastructure preparedness.
The commentary said, “International financing for adaptation and green transition purposes may help fill funding gaps for some sovereigns at the margins but this is likely to be a small portion of overall funding needs.”
The commentary said that south and southeast Asian populations and economies are the most exposed to flooding risks in the Asia-Pacific region. Vietnam stands out among southeast Asian nations as being highly prone to flooding risks, while the Philippines is one of the most exposed to risks from storms such as tropical cyclones.
In South Asia, Bangladesh is the most prone to the risk of flooding. The materialisation of climate risks in these regions could lead to high economic losses. The cost of relocation from flood-prone areas and rebuilding following floods could be high, leading to significant fiscal costs for some sovereigns.
Fitch Ratings said the fiscal buffers are constrained for most economies in south and southeast Asia, as their government debt is close to, or above, the peer median and/or revenue mobilisation is weak. This may be a negative rating driver as climate risks become more severe. The agency said flooding is one of the most common types of natural disasters, be it coastal or inland.
Singapore, however, remains the least at risk from physical risks resulting from climate change. The city-state had close to zero, or the lowest risk, among its Southeast 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 Southeast Asian counterparts. M