Intensifying risks related to water such as its scarcity and extreme events like droughts and floods are set to become a more crucial factor in determining sovereign ratings, adding pressure on countries to work on climate change.

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

As water is a vital raw material for manufacturing and agriculture, the water woes are set to hurt the economic growth of several countries. Some regions could see their growth rates decline by as much as 6 per cent of gross domestic product by 2050 as a result of water-related losses, according to the World Bank.

The pain is likely to worsen in currently affected regions while expanding to new areas, according to Fitch. Kuwait, the Emirates of Abu Dhabi and Ras Al Khaimah and Egypt are the most exposed sovereigns to water stress and drought risk while Bangladesh, Rwanda and Vietnam face the most flood risk.

 

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