A mother and daughter wading through the flood waters in Feni, Bangladesh in 2024. Catastrophic floods disrupted employment, trade and economy. Policymakers should stand ready to implement policies for speedy recovery. Credit: UNICEF/Sultan Mahmud Mukut

By Shuvojit Banerjee
BANGKOK, Thailand, Jul 25 2025 (IPS)

In the past year, Asia and the Pacific has faced intensifying climate pressures, from extreme heat in Bangladesh and India to devastating floods in northern Thailand and rising food insecurity across the Pacific.

But these are just the most visible signs. Beneath the surface, increasing temperatures, shifting rainfall and rising sea levels are quietly eroding fiscal space, distorting prices of goods and services, and weakening long-term economic resilience. Climate risks, both sudden and slow, are also reshaping the region’s macroeconomic landscape.

The latest ESCAP Economic and Social Survey of Asia and the Pacific explores how this evolving threat is affecting jobs, inflation, public finance and long-term economic resilience. To better understand countries’ readiness to confront these risks, ESCAP developed a new assessment framework that evaluates the intersection of climate exposure and macroeconomic coping capacity.

It focuses on two core dimensions: exposure, which is measured through potential output losses, agricultural risk, carbon intensity and climate-driven inflation; and macroeconomic coping capacity, which is captured through indicators of fiscal space, financial sector health, and institutional effectiveness.

When plotted on a two-axis matrix, countries fall into four quadrants depending on their exposure and macroeconomic coping ability. This matrix serves as a comparative tool to guide targeted policymaking.

Resilience is a balance: Exposure and coping must go hand in hand

Countries in the higher exposure-lower capacity quadrant face the most pressing risks. For example, Afghanistan, Cambodia and Nepal fall in this category due to both geographic and structural vulnerabilities, including recurrent climate events, limited fiscal buffers, and weaker institutional capacity.

The higher exposure-higher capacity quadrant includes countries such as Kazakhstan, Mongolia and Viet Nam. While each faces different forms of climate stress, they share stronger governance and macroeconomic fundamentals that support more effective responses.

Countries such as China, Malaysia and Thailand fall into the lower exposure-higher capacity quadrant. These economies benefit from current low climate exposure and resilient financial systems. Nevertheless, they need considerable investment in adaptation to prevent future vulnerability, especially given regional interdependence and evolving risks.

Finally, the lower exposure-lower capacity quadrant includes countries such as Lao PDR, Papua New Guinea, and Solomon Islands. These countries may face fewer direct climate threats today but remain vulnerable to disruption due to weak institutional and fiscal capacity. Even moderate shocks can have severe macroeconomic consequences.

Taken together, the quadrant framework underscores the need for differentiated policy approaches. For example, countries with high exposure and low capacity should focus on boosting fiscal space, strengthening financial sector resilience including through climate-aligned regulation and risk tools, and enhancing economic institutional capacity.

In contrast, countries with low exposure and strong capacity are well-placed to invest in adaptation innovation and support other regional peers.

Climate stress is a core economic risk

Climate change is already disrupting employment, trade, investment and public finance across the region. It is no longer an external shock but a defining macroeconomic challenge.

Governments must respond with sustained, systemic reform. Macroeconomic planning across Asia and the Pacific must place resilience at its core – not only to manage immediate shocks but to navigate a slower-moving, climate-shaped economic future.

Shuvojit Banerjee is Economic Affairs Officer, ESCAP

IPS UN Bureau

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