Climate change puts sovereigns at downgrade risk, is found in a study that simulated the economic impact of climate change on current sovereign credit ratings.
Climate change puts sovereigns at downgrade risk, study finds
By Mark John
The above-featured image is of A man walks past a coal-fired power plant in Shanghai A man walks past a coal-fired power plant in Shanghai, China, October 14, 2021. REUTERS/Aly Song/File Photo
Rising emissions scenario leads to 59 downgrades
Paris Agreement path would minimise credit impact
Heatwaves already seen damaging global economy
Aug 7 (Reuters) – A global failure to curb carbon emissions will lead to rising debt-servicing costs for 59 nations within the next decade, according to a study that simulated the economic impact of climate change on current sovereign credit ratings.
Among them, China, India, the United States and Canada could expect higher costs as their credit scores fall by two notches under a “climate-adjusted” ratings system, the study published in the Management Science journal on Monday found.
“Our results support the idea that deferring green investments will increase costs of borrowing for nations, which will translate into higher costs of corporate debt,” researcher Patrycja Klusak said of the study led by the University of East Anglia (UEA) and the University of Cambridge.
Rising debt costs would be just one extra facet of the overall economic damage which climate change is already causing. Insurance giant Allianz estimates that recent heatwaves will already have shaved 0.6% points off global output this year.
While ratings agencies acknowledge the vulnerability of economies to climate change, they have so far been cautious in quantifying those risks in their ratings exercises because of uncertainties about the likely extent of the damage.
The UEA/Cambridge study trained artificial intelligence models on S&P Global’s existing ratings and then combined that with climate economic models and S&P’s own natural disaster risk assessments to create new ratings for various climate scenarios.
A downgrade to 59 sovereigns emerged from a so-called RCP 8.5 scenario of emissions that keep rising. By comparison, 48 sovereigns experienced downgrades between January 2020 and February 2021 during the turmoil of the COVID-19 pandemic.
If the planet manages to stick to the goal of the Paris Climate Agreement, with temperatures held under a two-degree rise, sovereign credit ratings would under the simulation see no impact in the short-term and only limited long-term effects.
A worst-case scenario of high emissions through to the end of the century would on the other hand result in higher global debt-servicing costs, rising up to the hundreds of billions of dollars in current money, the model found.
While developing nations with lower credit scores are seen hit hardest by the physical effects of climate change, nations with the highest ranking credit scores were likely to face more severe downgrades simply because they have furthest to fall.
“There are no winners,” Klusak said in an interview.
The findings come as regulators around the world seek to better understand just how much damage to economies and the global financial system to expect from climate change. A European Central Bank paper last year urged greater clarity in how those risks were being built into credit ratings.
S&P Global Ratings has published the environmental, social and governance (ESG) principles used in its credit ratings which include reference to the risk of economic damage from climate change and the costs associated with mitigating it. It declined to comment on the UEA/Cambridge study.
Fitch Ratings pointed to its system of “ESG Relevance Scores” as including factors such as exposure to environment impacts as one component in its assessments.
“These are longstanding and increasingly important rating factors which we continue to weigh in our analysis and publish frequent research and commentary upon,” it said in response to a request for comment.
Writing and reporting by Mark John; Editing by Hugh Lawson
The above image is for illustration and is of Finance Magnates by Daily Advent.
In an exclusive interview with Finance Magnates, Achraf Drid, Managing Director of XTB MENA, recently discussed the global growth in trading volumes across the FX and CFD market. Drid believes that the MENA region holds a special place in the global financial services industry.
XTB is one of the largest financial brokerages in the world. Listed on Warsaw Stock Exchange, the financial trading services provider witnessed rapid growth in 2021.
It’s a pleasure having you with us Mr. Drid, for our readers, can you please introduce yourself?
Thank you for having me; it is my pleasure. I am the Managing Director of XTB MENA DIFC in Dubai, and XTB is one of the world’s leading brokerage companies. In my role, I’m actively involved in the company’s business development, legal processes, and all compliance aspects. I am also deeply involved in the company’s financial strength in investing in Fintech since we provide our customers not only the highest level of customer support but also the highest level of technology. Since XTB entered the MENA region, I have focused mainly on setting up and managing the company’s core sales and risk management processes. I’m also involved in the regulatory framework of the company to lead XTB into the future with integrity and transparency.
We are new to the MENA region, but we have been around since 2005 when XTB was founded in Warsaw as a company. We are one of the biggest brokerages in Europe and are also listed on the Warsaw Stock Exchange. Worldwide, we have been offering CFDs, Forex, commodities and indices for years, and then we saw an opportunity in the MENA region to cater to the increasing demand for a reliable and trustworthy broker in this part of the world.
What differentiates us from other brokers? First, we are not just a financial company, we are a fintech firm, since we employ more than 200 IT developers in our headquarters, and we keep improving our offering and services every month. We are not looking to be compared with other brokers; our goal is to be the Amazon or Netflix of trading.
Secondly, many brokers rely on the MetaTrader 4 platform, but we also offer our proprietary platform called xStation, which has won numerous awards. We have a large IT team responsible for keeping it up-to-date and who ensure it’s always working at top efficiency. I’m proud of our GUI platform and honestly believe it’s one of the best in the market.
Finally, we place a significant focus on education. I believe we’re one of the most education-focused brokerages in the world. Many resources are found on our platform, including various educational videos and reading material. The content recorded hasn’t only been produced by us and by some of the world’s most famous traders. We heavily focus on education when we present our platforms to the clients virtually and when we meet them in person.
Trading volumes across the FX and CFD industry jumped substantially in 2020 due to the lockdown, while the industry sustained growth levels in 2021, do you think the trend will continue into 2022?
The actual gross market value of OTC FX and CFDs has been rising; the Covid-19-induced market turmoil and strong policy responses drove developments in FX markets throughout 2020. This increase coincided with the significant depreciation of the US dollar against other major currencies. Acting as the primary vehicle currency, the US dollar was on one side of more than 80% of all currency pairs (measured by both notional amount and gross market value). Sizeable US dollar exchange rate movements can lead to more trading in FX and CFDs in the current year (2022).
Additionally, if you look back into the last ten years, forex trading has grown exponentially. Looking at the forex market in 2008, there were about US$48 trillion traded, and today that number is closer to US$80 trillion, which shows a growth of over 50%. I believe that the volume will continue to grow in 2022 at a steady rate, with forex trading making up 40% of the world’s total market.
In terms of financial services, the MENA region is one of the fastest-growing regions in the world, what makes MENA different from other locations?
The Middle East’s importance is rapidly growing in the global forex market, especially with its retail segment, compared to a relative slowdown and decline in other international markets.
It is driven by increased investor awareness of the opportunities available in global trading and the region’s strategic location between Asia and Europe as a hub. The local time zone enables it to capture market opening hours in the Far East and the US…and closing hours in the same working day, giving it better access to the broader global market, particularly the G7 currencies.
As we are based out of Dubai and regulated by the DIFC, we have experienced substantial growth of the UAE economy and the increasing number of ex-pats coming to live and work here; we have seen FX transactional flows rising, both in and out of the country.
Going forward into 2022, how is XTB MENA planning to expand its presence in the region?
The MENA region did go through significant challenges during the last two years, (with) the COVID-19 pandemic having an impact on the regional economy, like the rest of the world. However, some countries have adopted rapid, decisive and innovative measures to contain the virus, such as the smooth crisis management developed by regional governments.
MENA countries have responded rapidly to mitigate the economic consequences of the crisis on the private sectors and households and keep the financial market functioning. On average, 2.7% of GDP was allocated to fiscal measures, while 3.4% of GDP (over USD 47 billion) in liquidity injection was activated by Central Banks across the region during the first few weeks of the crisis.
The MENA market is estimated to witness significant growth, and at XTB, we feel very confident. The reason we decided to establish XTB regional office in the UAE is part of our strategic growth plan to support our customers locally, not only in FX but across other asset classes under our portfolio, including oil, gas and bullion.
Sponsorships played an important role in global brand awareness of financial trading platforms, how is XTB planning to use sports sponsorships for its global growth?
In the past, we had a partnership with McLaren Mercedes, then with Hollywood actor Mads Mikkelsen, and now we have a partnership with Jose Mourinho, and we have other plans for the future – for obvious reasons; we would like to keep this as a surprise!
SCOOPEMPIREBusiness provides a Guide for MENA Investors in its Essential Tips for Investing in Gold and Silver. Or is it another way to providing a safe door out of the increasingly Fossil Fuels divestment world trends? Let us find out.
A Guide For MENA Investors: Essential Tips For Investing In Gold And Silver
Precious metals such as gold and silver are fascinating investment asset classes, which also offer the benefits of stability and predictability to traders across the globe.
For example, despite being separated by a number of key differences, both gold and silver see demand and price points soar during specific times, in which each asset is heavily influenced by an array of macroeconomic factors.
Interestingly, precious metals are particularly important for MENA populations, both culturally and from a wider investment perspective. However, when is the best time to invest in gold and silver? We’ll explore this question further below!
The Importance of Precious Metals Amongst MENA Populations
While China and India remain the dominant buyers of gold and precious metals in the global marketplace, there’s no doubt that certain MENA countries are becoming increasingly influential within this space.
To provide some context, China and India acquired more than 364 tonnes of gold jewellery alone during the first quarter of 2015, with this number having increased incrementally through 2019.
However, while the US trails behind in third place in terms of precious metal procurement and consumption, MENA nations are beginning to threaten the established status quo within the industry.
Make no mistake; Saudi Arabia and the UAE are now established as the fourth and fifth biggest buyers of gold in the world, with this trend increasingly driven by cultural elements and age-old traditions (particularly those pertaining to religious celebrations and weddings).
The Economic Case for Gold and the Best Time to Invest
In the MENA region, gold purchases are also commonly completed as an investment, particularly given the increasingly uncertain economic climate that persists across the globe.
The world has seen two significant economic crises during the last decade. For example, in the form of the great recession, and the financial fallout from the coronavirus pandemic.
As a result, gold has never been more fashionable and relevant as an alternative investment, thanks to its reputation as a secure store of wealth and viable hedge against uncertainty, and the inflationary pressures of fiat currencies.
While silver boasts similar qualities, it boasts far greater industrial usage, and is far more likely to increase in value as countries move out of a recession. This point of difference underpins the so-called “gold-silver ratio,” which encourages investors to hedge their bets in both metals, by taking a short position in either gold or silver (depending on live prices and the prevailing economic climate).
As a general rule, however, it’s best to purchase gold during times of economic tumult, whilst transitioning to silver as the global economy and demand begins to improve.
Where to Trade Gold and Silver
There are also plenty of options in terms of how to trade gold or silver, aside from physical procurement and leveraging these precious metals as tangible stores of wealth.
You can also trade precious metals through derivative products such as contracts-for-difference (CFDs), which are ideal from a practical perspective, as physical gold trading is incredibly inefficient and non-cost-effective.
Through CFDs, you can also gain flexibility by profiting through gold and silver price speculation, as you can simply trade price movements and fluctuations that occur on a daily basis.
ARAB NEWS‘ article on the MENA countries weighed down by pandemic debts as these have already registered the advent of this pandemic inadvertently hit some declines in real GDP growth from their oil exports reduction. Since the beginning, these had difficulty coping with COVID 19 pandemic prevention for many reasons that are of a logistics nature but structural.
MENA countries weighed down by pandemic debts will struggle to grow – World Bank
Average MENA debt to GDP rose 9 points since 2019 to 55% in 2021
Countries with low external debt can still borrow cheaply
WASHINGTON, D.C.: The outlook for the Middle East and North Africa has worsened considerably over the past year as countries accumulated debt to pay for pandemic relief measures, leaving them with less to invest in post-pandemic economic recovery, according to the World Bank.
Average debt to GDP in the MENA region rose by 9 percentage points since the end of 2019 to 55 percent in 2021, the World Bank said in a report Living with Debt: How Institutions Can Chart a Path to Recovery in the Middle East and North Africa released on Friday. Debt among the region’s oil importers is expected to average about 93 percent of GDP this year, it said.
MENA economic growth will rebound by 2.2 percent in 2021 after contracting 3.8 percent in 2020, but will be 7.2 percentage points, or $227 billion, lower by the end of this year than it would have been had the pandemic not happened, the World Bank estimates. Real GDP per capita will be 4.7 percent lower in 2021 than in 2019.
“The MENA region remains in crisis, but we can see hopeful signs of light through the tunnel, especially with the deployment of vaccines,” said Ferid BelHajj, World Bank vice president for the Middle East and North Africa. “We have seen the extent to which MENA governments borrowed to finance critical health care and social protection measures, which saved lives and livelihoods, but also boosted debt.”
As of the first week of March, the UAE had the highest percentage of its population vaccinated, at 63.5%, followed by Bahrain at 30% and Morocco at 12.2%, then Qatar at 11.4%, World Bank data shows. Saudi Arabia had a 2.2% vaccination rate.
MENA countries will need to keep on borrowing this year to prop up their citizens’ finances but will face high borrowing costs, particularly those with high debt and low growth, the bank said. However, those with low levels of public external debt, such as Saudi Arabia, Qatar and Morocco, could issue debt at lower rates, it said.
The remedy for the increasingly precarious situation of many of the region’s economies is faster growth that makes it easier to roll over existing debt, the World Bank said. Those that cannot roll over debt face potentially painful restructurings and should enter into negotiations before they hit crisis point, the report advised.
Of benefit to the whole region would be enhanced debt reporting transparency and financial market vulnerability monitoring, it said. MENA countries should reveal all their borrowing, including those from China, as should debt become exposed during periods of distress it will be added to the public tally just as they are negotiating with lenders, the report said.
“Economic growth remains the most sustainable way to reduce debt,” the report said. “Boosting economic growth requires deep structural reforms to raise the productivity of the existing workforce and to put idle working-age people in jobs. Many MENA countries that have characteristics associated with ineffective fiscal stimulus, such as high public debt and poor governance, could consider fiscal reforms early in the recovery from the pandemic.”
Manama named most financially attractive city, Riyadh 4th in list per AIRINC and as reported by Trade Arabia. Manama most financially attractive City goes back a long time since shortly after the advent of oil exploration and production in the Gulf region.
DUBAI, The GCC cities dominated the global Financial Attractiveness Index list with Bahrain’s capital Manama being named the world’s most financially attractive city in AIRINC’s latest Global 150 Cities Index followed by Riyadh in 4th place, Kuwait City in 6th, Abu Dhabi in 7th, Dubai in 12th, and Muscat in 16th.
The index https://www.air-inc.com/global-150/ ranks 150 of the top global locations according to financial attractiveness and lifestyle attractiveness. It combines local salary levels, tax rates, living costs, and living conditions to assess how appealing each location is to live in.
Every single GCC member was represented in the top 20 most financially attractive cities in the world, according to AIRINC’s latest Global 150 Cities Index.
The data is collected by AIRINC’s own in-house survey team, who continuously research the costs and living conditions of many cities around the world to evaluate international mobility.
GCC economies have invested considerable sums in making themselves more attractive to international businesses in line with ambitious region-wide economic diversification efforts, it stated.
As the first GCC member to begin diversification, Bahrain offers one of the easiest and most cost-effective environments to set up and operate a business in the world.
Businesses operating in the Kingdom enjoy 0% tax and 100% foreign ownership allowed.
Thanks to its comprehensive programme of reforms, increasingly digital Bahrain was recently named the fourth most improved economy in the world by the World Bank’s latest Ease of Doing Business report.
As well as ranking first in the world for financial attractiveness in the AIRINC index, Manama also jumped 15 places for overall attractiveness, to 48th.
Earth has been used as a building material for at least the last 12,000 years. Ethnographic research into earth being used as an element of Aboriginal architecture in Australia suggests its use probably goes back much further.
Traditional construction methods were no match for the earthquake that rocked Morocco on Friday night, an engineering expert says, and the area will continue to see such devastation unless updated building techniques are adopted.
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