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Increased water risk will gain importance for sovereign ratings

  • Increased water risk will gain importance for sovereign ratings

The increase in water risks, including water scarcity and extreme weather events like floods and droughts, is becoming a more and more important aspect when it comes to deciding a country’s sovereign rating, reports Bloomberg. This entails a mounting pressure on countries to act on climate change.

Water is essential for agriculture and industry, so water stress issues will affect countries’ economic growth. The World Bank estimates a decline in growth rates amounting to 6% of their GDP by 2050 in some regions of the world, stemming from water-related losses that impact agriculture, health, income and prosperity.

Fitch believes the difficulties can get worse in the regions currently affected, and can expand to new ones

Fitch believes the difficulties can get worse in the regions currently affected, and can expand to new ones. Some of the countries with higher risks derived from water stress and drought include Kuwait, the Emirates of Abu Dhabi and Ras Al Khaimah and Egypt. Meanwhile, those facing a high flood risk include Bangladesh, Rwanda and Vietnam.

Mahmoud Harb and Kathleen Chen, from Fitch Ratings, said: “While disruptions from climate change are likely to manifest themselves only gradually over the coming decades, water risks already materialize on a sufficiently regular basis and large scale”. And added: “The relevance of water risks for sovereign rating is set to rise.”

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