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Does climate change affect the financial stability of Sub-Saharan African countries?

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  • Getaneh Mihret Ayele

    (Bahir Dar University)

  • Fentaw Leykun Fisseha

    (Bahir Dar University)

Abstract

This study examined how climate change impacts the financial stability of Sub-Saharan Africa (SSA) using panel data spanning from 2010 to 2018. Using the System Generalized Method of Moments (SGMM), the study revealed that climate change exerts a significant negative effect on the financial stability of SSA both in the short and long-run. Specifically, compared to negative shock, a positive shock to mean temperature would cause a significant negative adjustment to the financial stability both in the short- and long-run. Moreover, the results showed that climate change poses a greater threat to financial stability in the long-run compared to the short-term. The standardized precipitation index also has a significant positive impact on financial stability in the long-run. Thus, governments and financial regulators in SSA should address climate-induced financial risks, particularly physical risks, through consistent and congruent climate policy responses. Central banks should integrate climate risks into their core policy and regulatory frameworks using climate-risk assessment tools like stress tests, mandating firms across sectors to disclose minimum climate-related information, and offering incentives for green investments with clear eligibility criteria to bridge the climate funding gap and proactively mitigate climate risks.

Suggested Citation

  • Getaneh Mihret Ayele & Fentaw Leykun Fisseha, 2024. "Does climate change affect the financial stability of Sub-Saharan African countries?," Climatic Change, Springer, vol. 177(10), pages 1-22, October.
    • Handle: RePEc:spr:climat:v:177:y:2024:i:10:d:10.1007_s10584-024-03814-2
    DOI: 10.1007/s10584-024-03814-2
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