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May 2022

Taiwan drought highlights water stress as growing environmental risk

Source: Asia Insurance Review | Jun 2021

Taiwan’s extended drought indicates how water stress and changing precipitation patterns could emerge as financial risks and the stark choice governments may have to make in rationing water between households and industry according to a new report by Fitch Ratings.
The report expects climate change to make these challenges more common and difficult globally over time. Fitch says Taiwan’s typhoon season failed to materialise in 2020 and has been followed by a persistent lack of rainfall.
Data from Taiwan’s Central Weather Bureau shows that Taipei averaged around eight precipitation days per month in the first quarter of 2021, a 35% decline from the average for the first quarter over 2010-2020. The shortage led the government to introduce water rationing for households and businesses in April 2021.
Taiwan’s high-value export-oriented sectors, such as semiconductor manufacturing, have continued operations by transporting water from less affected regions. It is likely that the government will continue to support water access for the technology parks over agriculture, another water-intensive sector, given the negative impact the drought has already had on crop yields.
A prolonged drought and more extensive rationing could, however, create societal tensions over the allocation of water. Taiwan’s government has recommended that heavy users (more than 10,000 metric tonnes per month) face an additional surcharge, but this has yet to be introduced.
Fitch previously analysed how water stress and extreme weather events could have a medium- to long-term credit impact on issuers, including sovereigns and agribusinesses. The current situation in Taiwan highlights the challenges many water scarce economies could face. A 
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