Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/299409 
Year of Publication: 
2024
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-01574
Publisher: 
Inter-American Development Bank (IDB), Washington, DC
Abstract: 
Climate change is an existential threat to the world economy, with complex, evolving and nonlinear dynamics that remain a source of great uncertainty. There is a bourgeoning literature on the economic impact of climate change, but research on how climate change affects sovereign risks is limited. This paper provides forward-looking regional analysis of the effects of climate change on sovereign creditworthiness, probability of default and the cost of borrowing for the Caribbean economies. Our results indicate that there is substantial variation in the sensitivity of ratings to climate change across the region which is due to the non-linear nature of ratings. Our findings improve the identification and management of sovereign climate risk and provides a forward-looking assessment of how climate change could affect the cost of accessing international finance. As such, it leads to a suite of policy options for countries in the region.
Subjects: 
Sovereign credit rating
climate change
counterfactual analysis
climateeconomy models
sovereign debt
physical risks
fiscal policy
transition risks
Latin America
Caribbean
JEL: 
C33
C53
G10
G18
H63
O44
O54
Q51
Q54
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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