EDEN IAS

bankruptcy risk

UPSC CURRENT AFFAIRS | BIODIVERSITY LOSS TO RAISE INDIA’S BANKRUPTCY RISK 29% | 28TH JUNE | DTE

SYLLABUS SECTION: GS III (ENVIRONMENT AND ECOLOGY)

WHY IN THE NEWS?

According to a study by British economists, loss of biodiversity will downgrade the credit ratings of several countries, including India, increasing their bankruptcy risk.

  • Developing countries are already saddle with crippling debt burdens driven by COVID-19,
  • And soaring prices, and loss of nature will push these countries closer to the edge.

WHAT IS SOVERIGN CREDIT RATING?

  • Sovereign credit ratings are an independent assessment that determines the creditworthiness of a country.

FINDINGS OF THE STUDY:

  • The study claims that investors and corporations ignoring biodiversity loss from calculations could lead to market stability being undermine.
  • At least 58 per cent of the 26 countries would face a detrimental impact in bankruptcy risk.
  • China and Malaysia would be the worst-affected with downgrades of more than six notches,
  • India, Indonesia, Ethiopia and Bangladesh can expect downgrades of four notches.
  • The downgrades to four notches for India and other countries means that they will be burdened with billions of dollars in interest.
  • Madagascar, Pakistan and some other countries are likely to default,
  • Which means they will be unable to repay the credits due to a sudden collapse of biodiversity.
  • The repercussions to the situation would result in additional interest costs between $28 billion and $53 billion per annum on the global capital markets.
  • Nature loss reduces economic performance, and as a result it will put the countries to service their debt, straining government budgets and forcing them to raise taxes, cut spending, or increase inflation. This will create grim consequences for ordinary people.

SOURCE: DTE

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