vulnerabilities (Figure 11, Table 4). For East and South Asia, in many countries elevated climate vulnerability coincides with elevated banking sector risks, suggesting that climate change could lead to a deepening of financial sector risks. Many countries in the East Asia and Pacific region are also vulnerable to climate change, but countries in the region differ significantly with respect to their macro‐financial resilience to physical risk and their macro‐financial capacity for adaptation and mitigation. A relatively large share of countries has strong macro‐financial resilience and capacity. Countries in the LAC and MENA regions have a smaller share of countries that face the double jeopardy of high climate vulnerability and macro financial risks. The ECA countries have the lowest vulnerability to climate change among all regions, with no countries that are assessed as having both elevated climate vulnerability and macro‐financial risks.

**Table 4. Countries with global warming risk and at least one elevated macro‐financial risk**

|**EAP**|**ECA**|**LAC**|**MENA**|**SAR**|**SSA**||
|---|---|---|---|---|---|---|
|Cambodia<br>Myanmar<br>Papua||Bolivia<br>Cuba<br>Dominican|Bahrain<br>Egypt, Arab<br>Rep.|Bangladesh<br>Sri Lanka|Angola<br>Congo, Rep.<br>Ghana|Nigeria<br>Seychelles<br>Sierra|
|New||Republic|Iraq||Kenya|Leone|
|Guinea||Ecuador|Syrian Arab||Malawi|Sudan|
|Vietnam||Jamaica<br>Nicaragua|Republic<br>||Mozambique<br>Namibia|Tanzania<br>Zambia|

_Regression_ analysis confirms that countries that are vulnerable to gradual global warming also show macro‐financial vulnerabilities that could affect their ability to respond to the disruptions generated by climate change (Table A1.3). The “sensitivity” component of the Notre Dame Vulnerability Index is the main channel of transmission between climate change distortions and macro‐financial vulnerabilities, while the “adaptative capacity” component of the index offsets the effects of the “sensitivity” channel.

- **Fiscal position:** Countries with higher “sensitivity” to climate change impacts tend to have higher levels of public debt and lower sovereign ratings. This result means that countries that could be more affected by physical‐gradual risks of climate change have less fiscal space to respond to the challenges of that phenomenon. Countries with higher “exposure” also show higher public debt levels, while countries with more “adaptative capacity” show lower public debt.

- **Banking sector:** Countries that are more vulnerable to climate change show lower bank provisions (% of NPLs). Even though we find no statistical association between NPLs (% total assets) and the Notre Dame vulnerability index, provisions show a negative and significant relationship with the vulnerability index via its “sensitivity” component.

- **Macro‐financial risks:** Countries with higher vulnerability to climate change also show higher macro‐financial risks, particularly in the public sector bucket, based on the EIU Index. Consequently, the ability to respond to the challenges of climate change is limited in countries with weaker macro‐financial conditions. At the same time, there is a negative correlation between country risk and countries’ readiness to adapt to climate change (Figure 9). The negative correlation between country risk and readiness to adapt may partly reflect the fact that there is some overlap in what the two concepts measure.

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