An Apocalypse Foretold: Climate Shocks and Sovereign Defaults

November 8, 2020

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Serhan Cevik, and João Tovar Jalles. An Apocalypse Foretold: Climate Shocks and Sovereign Defaults, (USA: International Monetary Fund, 2020) accessed November 20, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Climate change poses an existential threat to the global economy. While there is a growing body of literature on the economic consequences of climate change, research on the link between climate change and sovereign default risk is nonexistent. We aim to fill this gap in the literature by estimating the impact of climate change vulnerability and resilience on the probability of sovereign debt default. Using a sample of 116 countries over the period 1995–2017, we find that climate change vulnerability and resilience have significant effects on the probability of sovereign debt default, especially among low-income countries. That is, countries with greater vulnerability to climate change face a higher likelihood of debt default compared to more climate resilient countries. These findings remain robust to a battery of sensitivity checks, including alternative measures of sovereign debt default, model specifications, and estimation methodologies.

Subject: Climate change, Debt default, Environment, External debt, Financial sector development, Public debt, Real effective exchange rates

Keywords: Climate change, Climate change face, Climate change pay, Climate change resilience, Climate change vulnerability, Debt default, Government debt, Resilience, South America, South Asia, Sovereign default, Sub-Saharan Africa, Vulnerability, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/231
Stock No:

WPIEA2020231
ISBN:

9781513560403
ISSN:

1018-5941

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