The Inter-American Development Bank (IDB) has released a publication that provides a 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 (Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago).

The study used AI methodology to simulate the effect of climate change on sovereign debt across the region under varying warming scenarios. 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.

The authors state that the key findings of the study 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. Finally, a series of key implications for policymakers are described: i) investing in statistical infrastructure and data gathering; ii) global climate scenarios can understate the actual climate risks faced by Caribbean; iii) innovative finance mechanisms may help plug the finance gap, but they are not a panacea; iv) diversification away from oil and gas; and v) better quantification of the economic costs of climate change throughout the region can support demands for greater action at international climate summits and agreements.