Water mismanagement pose credit risks in Asia

Water mismanagement in Asia poses credit challenges across multiple sectors in Asia, according to Moody’s Investors Service.

“Asia is generally more vulnerable to water risks than other regions. Across sectors, issuers are facing water management issues such as inadequate access to clean or purified water supply, and reputational and regulatory risks related to the downstream effect of water use, including supply, pollution and sanitation,” said Nishad Majmudar, a Moody’s assistant vice president and analyst.

In its latest report, Moody’s said the risks are higher in parts of South and Southeast Asia, where water scarcity and mismanagement are prevalent.

“In this subregion, annual freshwater withdrawal amounts to 50 percent of the available domestic supply and 43 percent of the population is exposed to unsafe drinking water, on average, suggesting weak infrastructure for managing available water resources,” it said.

In contrast, average freshwater withdrawals account for only 20 percent of available supply in Western Europe, and 10 percent in Latin America and the Caribbean.

Of 25 economies in Asia, Moody’s Investors Service identified 10 that have highly negative or very highly negative exposure to water management risks, including India (Baa3 negative), Pakistan (B3 stable), Bangladesh (Ba3 stable) and China (A1 stable).

“We also identify six economies with moderately negative exposure to water management risks, including Fiji (B1 negative), Indonesia (Baa2 stable), Papua New Guinea (B2 negative) and the Philippines (Baa2 stable),” Moody’s added.

The report said many of the countries with moderately negative exposure are island archipelagos with low levels of water availability and quality.

Moody’s said the mismanagement of water resources has direct implications on Asia’s economic activity, with negative effects across sectors. It added that water-intensive sectors such as mining, agriculture, textiles, semiconductors and hydroelectric and thermal power depend on proper water management for their productivity.

“For sovereigns, water stress and poor sanitation can weaken their growth outlook, as well as add to fiscal costs and social tensions,” Moody’s said.

It added that water management risks also affect financial institutions indirectly, since the risks affect the borrowers’ creditworthiness.

“Over time, these risks may bring more impaired assets, increased insurance claims related to issuers’ water supply constraints, and tighter regulations in water-scarce regions,”Moody’s said.

Moreover, the report also stressed that as climate change progresses, water mismanagement will become a greater credit risk.