Republic of Kazakhstan: Financial Sector Assessment Program-Technical Note on Climate-Related Risks and Financial Stability

This paper highlights the Technical Note on Climate-Related Risks and Financial Stability for the Republic of Kazakhstan Financial Sector Assessment Program. Domestic and global climate policies are expected to negatively affect Kazakhstan’s economy, its firms, industries, and banks, with heterogenous impacts across industries and banks. Improving and harmonizing data can be the first step to enhance interagency coordination and assess climate-related risks. Given the potential for substantial risks associated with climate change and climate mitigation actions, the authorities should develop capacity to conduct climate stress testing. While this analysis focuses on transition risk, Kazakhstan also faces physical risks, which require further assessment. The intensity and frequency of floods and droughts in Kazakhstan are expected to increase with climate change. Floods and droughts can affect crop yield and production, energy system operation, and major infrastructure and result in significant economic losses. Moreover, climate change, together with the onset of El Niño, will greatly increase the likelihood of extreme events in the next five years and increase physical risk in the near term.