The Bank of Jamaica (BOJ) has outlined plans to include an assessment of the impact of climate risks on the country’s financial system.

While stating in its Financial Stability Report 2021 that “the risks to the wider financial system were relatively subdued”, the central bank also pointed out that given “the potential impact of climate-related financial risk (CRFR), the BOJ has plans to advance its oversight in this area.

“Specifically, with support from the Agence Française de Developpment (AFD), BOJ will be looking to integrate climate risks into the bank’s supervisory activities as well as to conduct climate-specific stress testing of the financial system,” the report continued.

The Financial Stability Report 2021 analysed the risks to Jamaica’s financial system as a result of changes in the macrofinancial environment, including risks associated with the novel coronavirus pandemic. Notably, it said the economy began to show signs of recovery from effects of the pandemic as risks were moderate.

With a normalisation in economic activities, especially in the tourism sector, the country recorded 4.4 per cent in the calendar year.

The BOJ also highlighted in the report that deposit-taking institutions maintained strong liquidity and capitalisation during the period, as household debt as a proportion to gross domestic product (GDP) contracted.

At the same time, the country’s debt-to-GDP fell below 100 per cent

Notwithstanding, the country faced emerging risks associated with volatility in commodities markets and, in the latter part of the year, global inflationary pressures as shipping costs trended upward and local demand for consumption goods increased.

“While the economy is poised to register further growth, inflation pressures are likely to remain strong or be amplified in 2022. Moreover, there remains an ongoing risk associated with climate change,” the report outlined.

“There is not enough data on the financial system’s exposure to climate related risks,” it added.

Making reference to an IMF report, the bank noted that Jamaica ranks among the top 20 countries that are vulnerable to climate-related disasters including bouts of flooding and drought. Moreover, it flagged these risks given the country’s dependence on tourism, agriculture, mining and energy.

“Notably, climate-related financial risks have been increasing identified by central banks as being material to the financial system stability mandate. In fact, several regulatory authorities have already started the process to develop and utilise methods and models to assess the impact of climate risk on the financial system,” the report stated.

It also pointed out that financial institutions are also at risk of losses to natural disasters since they lend to and invest in the tourism, agriculture, mining and energy sectors.

Earlier this month, president of the Caribbean Development Bank Dr Gene Leon and CCRIF SPC CEO Isaac Anthony called on the governments of Caricom member states to improve their risk management framework, considering the impact of climate change on small island developing states.