Managing Sovereign Climate Risk in Vulnerable Developing Countries: Smart Support Guidance for Donors and Policy Makers

Zhu, Q., Yokomatsu, M., & Hochrainer-Stigler, S. ORCID: https://orcid.org/0000-0002-9929-8171 (2025). Managing Sovereign Climate Risk in Vulnerable Developing Countries: Smart Support Guidance for Donors and Policy Makers. DOI:10.5194/egusphere-egu25-21950. In: EGU General Assembly 2025, 27 April-02 May 2025, Vienna.

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Abstract

Developing countries grapple with a critical dilemma: balancing the imperative of development with investing in measures to build resilience against climate risks. Current adaptation efforts are often insufficient due to limited resources and fragmented initiatives, leaving vulnerable countries increasingly exposed to escalating threats. Madagascar serves as a poignant case study, vividly illustrating these challenges.

Hence, there is a pressing need for close collaboration between national governments and international donors to strategically mobilise limited resources for maximal resilience benefits. The Smart Support Guidance offers an analytical framework to demonstrate the benefits of various risk management strategies under a broader macroeconomic context. Integrating Climate Disaster Risk Reduction Measures (CDRM) and Climate Disaster Risk Insurance and Finance (CDRFI) solutions, this guidance facilitates the “optimisation” of investments, the assessment of multi-metric impacts of policies, and the maintenance of a balance between risk reduction, development, and fiscal sustainability.

Our Smart Support framework involves estimating the risk profiles, estimating the governmental financing ability to address disaster damages, and evaluating the policy trade-offs of various adaptation strategies. The risk profile estimation uncovers the significant vulnerabilities of Madagascar to cyclones and surges. Identified in the financing ability analysis, we highlight a large gap between available resources and the need for recovery and reconstruction given the current risk profile. This underscores the necessity for substantial investments in CDRM and CDRFI. To better illustrate the broader development and resilience impacts of CDRM and CDRFI, we developed the macroeconomic model to demonstrate that investments in risk management can bolster GDP growth and stability. Subsidies on risk management measures, backed by international donors, mitigate fiscal vulnerabilities, and fortify resilience.

In conclusion, tailored adaptation strategies, robust stakeholder engagement, and refined economic modelling are paramount. Collaboration between national governments and international donors is vital for constructing climate-resilient futures for vulnerable countries like Madagascar.

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