Öykü Altuntaş / Istanbul, Sep 14 () – International ratings company Standard & Poor's released its first-ever report on potential impacts of calamitous natural disasters on sovereign ratings, and declared that climatic perils could have measurable impacts on the ratings of countries.
Within the report entitled "Storm Alert: Natural Disasters Can Damage Sovereign Creditworthiness" the company forecasted potential impacts over ratings of several countries and emphasized that Turkey is also under high risk due to its position covering the faultline.
The report added that climate change and the frequency and severity of natural disasters could intensify in the future. According to the the report, these cases could lower sovereign ratings in extreme cases by over two notches.
Accordingly, it suggested the biggest ratings impact would likely to come from earthquakes, followed by tropical storms.
One of the key claims was that sovereign ratings in Latin America and the Caribbean, followed by Asia, Chile and Japan were most at risk due to their frequency of earthquake.
For instance, in Japan the once every 250 years frequency of earthquakes could lead to a decline in sovereign rating by at least two notches, and potential severe economic and financial repercussions for the rest of the world.
Bangladesh and Dominican Republic, on the other hand, were pointed out as most at risk of tropical storm-induced downgrades.
Fault lines’ impact on ratings
Standard & Poor's report pointed to the potential direct economic damage and related pressure on creditworthiness for sovereigns on or close to the edges of geological plates on earth. In this regard, Chile, Costa Rica, Ecuador, Japan, Panama, Peru, Philippines, Taiwan, and Caribbean are under risk.
Turkey, covering the North Anatolian fault line, marks one of the regions with potential risk of climatic perils on creditworthiness.
The Top-10 countries with potential rating impact of simulated 1-in-250-year natural disasters were listed as below:
Dominican Rep. / Tropical storm and surge 2.5
Chile / Earthquake 2.4
Bangladesh / Tropical storm and surge 2.2
Japan / Earthquake 2.1
Costa Rica / Earthquake 1.8
Vietnam / Tropical storm and surge 1.8
Peru / Earthquake 1.8
Thailand / Flood 1.6
Taiwan / Earthquake 1.3
Turkey / Earthquake 1.3
If the “disaster scenarios” occur in the listed countries, the company expects that sovereign ratings of countries such as Ecuador, Panama, Taiwan and Turkey would drop by one notch, while ratings of Chili and Japan would decline by two notches.
In many other sovereigns such as Colombia, Dominican Republic, Indonesia, Israel, Italy and Mexico, the ratings impact is though to drop by at least half a notch, indicating a material downward pressure.
The company’s report also suggests that the only way to mitigate the economic and ratings implications of natural disasters was catastrophe insurance of countries. Accordingly, emerging and developing sovereigns are the most vulnerable countries to natural disasters due to their low insurance coverage.
Additionally, the potential economic impact of floods and winter storms are lower, while not negligible, according to the report.
Due to high insurance coverage, developed European countries are not considered to face potential macroeconomic results and a decline in sovereign ratings.
Among the countries, severe floods can cause the most economic damage in Hungary and Thailand, listed the report.