## Climate Shocks, Debt Defaults and Investment in Climate Adaptation – Squaring an Impossible Trilemma

_IMF Working Papers, June 26, 2026_

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## Bibliographic details
- Authors: Constance de Soyres, Emmanuella Obeng, Joanne Tan
- Published: June 26, 2026
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229051026.001

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### Overview
- Climate disasters are associated with increased sovereign default risk.
- Countries face an “impossible trilemma”: scale up adaptation investment, keep debt sustainable amidst high borrowing costs, and avoid the higher risk of default from delayed adaptation.
- Study uses a global panel of disaster event-level shocks to link disaster losses, adaptive capacity, concessional Official Development Assistance (ODA), and sovereign default probabilities.
- Context: declining ODA increases the importance of well-designed support for climate adaptation policies.

### Key findings
- A 1pp increase in disaster related losses as a share of GDP raises the odds of sovereign default by approximately 2-3 percent.
- An additional US$1 billion in cumulative Official Development Assistance (ODA) is associated with a 0.13 point gain in a country’s adaptive capacity.
- The authors map concessional ODA finance to default probability using average marginal effects and predicted margins to produce a budgeting yardstick for calibrating needed ODA to sovereign default risk reduction targets.

### Quantitative results and metrics
- Disaster loss impact: "1pp increase in disaster related losses as a share of GDP" → increase in default odds of "approximately 2-3 percent".
- Concessional ODA impact: "An additional US$1 billion in cumulative Official Development Assistance (ODA)" → "0.13 point gain" in adaptive capacity.
- Publication specifics that appear in the source:
  - Pages: 27
  - Volume: 2026
  - Issue: 128
  - Series: Working Paper No. 2026/128
  - DOI: https://doi.org/10.5089/9798229051026.001
  - ISBN: 9798229051026
  - ISSN: 1018-5941

### Policy implications and recommendations
- Prioritize well-designed concessional ODA for climate adaptation to reduce sovereign default risk.
- Use the translated relationships between concessional ODA and default probability as a practical budgeting yardstick to calibrate ODA allocations against sovereign default risk reduction targets.
- Recognize trade-offs inherent in the trilemma: scaling adaptation investment must be balanced with debt sustainability considerations and the timing of adaptation to avoid higher default risk.

### Methodological note
- Evidence is derived from a global panel of disaster event-level shocks.
- The mapping of concessional ODA to default probability relies on average marginal effects and predicted margins to quantify finance-to-risk relationships.

*Constance de Soyres, Emmanuella Obeng, and Joanne Tan. June 26, 2026. "Climate Shocks, Debt Defaults and Investment in Climate Adaptation – Squaring an Impossible Trilemma", IMF Working Papers 2026, 128 (2026).*

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_Source: https://www.imf.org/en/publications/wp/issues/2026/06/23/climate-shocks-debt-defaults-and-investment-in-climate-adaptation-squaring-an-impossible-577218_