The first significant study on the subject, has warned that significant global biodiversity loss could, by the end of the decade, seriously harm the economies of more than half of the world’s sovereign credit ratings, including China’s.
It estimated that the detrimental impact would result in 58% of the 26 countries studied facing at least a one notch downgrade of their sovereign credit rating.
The study, which was released on Thursday by a collection of British institutions, examined a number of scenarios, including one in which some economies that depend on agriculture and fisheries would be destroyed by a partial collapse of critical ecosystems.
As ratings affect how much governments have to pay to borrow on the global capital markets, the downgrades would result in between $28 to $53 billion of additional interest costs annually.
The study carried out by the University of East Anglia, Cambridge, Sheffield Hallam University and SOAS University of London shows that China and Malaysia would be most severely hit, with rating downgrades by more than six notches in the partial collapse scenario.
“The ratings impact under the partial ecosystem services collapse scenario is in many cases significant and substantial,” the report said, adding that those additional debt costs would mean governments have even less to spend and that things like mortgage rates would go up.
India, Bangladesh, Indonesia and Ethiopia would face downgrades of approximately four notches, while almost a third of the countries analysed would see more than three.
For China, that drop in creditworthiness would add an additional $12 to 18 billion to its yearly interest payment bill, while the country’s highly-indebted corporate sector would incur an additional $20 to 30 billion. Malaysia’s costs would rise between $1 to 2.6 billion, while it companies would need to cover additional $1 to 2.3 billion.
“More importantly, these two sovereigns would cross from investment to speculative-grade,” the report said, referring to what investors usually dub a higher risk ‘junk’-grade credit rating. “Biodiversity loss can hit economies in multiple ways. A collapse in fisheries, for example, causes economic shockwaves along national supply chains and into other industries,” said co-author Dr Patrycja Klusak, affiliated researcher at Cambridge’s Bennett Institute and Associate Professor at the University of East Anglia.
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