With biodiversity loss and deforestation being increasingly recognised as systemic economic risks that have serious implications for sovereign debt and the financial markets, a study has revealed that a partial ecosystem collapse scenario could increase annual debt servicing costs by US$ 49 billion in India and by US$ 70 billion in China.China and India face the greatest economic exposure, with additional annual interest payments. The additional payments arising from nature loss would be equivalent to 2.4 per cent of the median Indian’s disposable income each year, the study observed.Across just the 23 countries surveyed in the study noted an additional annual interest payment of US$ 162 billion, which according to the researchers is a substantial amount concentrated in a very small number of countries.With at least half of global gross domestic product (GDP) considered moderately or highly dependent on nature, there is mounting evidence that environmental–economic risks extend well beyond the climate system to include biodiversity loss, deforestation, water stress and broader environmental change, the study observed.Undertaken by six researchers from different academic, financial and environmental institutions in the United Kingdom, United States and Germany, the study was published in Nature Ecology and Evolution, a peer reviewed journal, on June 5.According to the researchers, the near-term human, economic and financial toll of nature loss are substantial. Deforestation and species loss alone make pandemics such as Covid -19 more likely, and estimates indicate that even partial collapses in just three ecosystem services — wild pollination, marine fisheries and tropical timber — could result in a decline in global GDP of US$ 2 trillion annually by 2030. “Yet, action on biodiversity policy and finance has long lagged behind climate efforts,” they remarked.Macroeconomic studies on biodiversity often focus on global assessments of the value of natural capital and ecosystem services to human well-being rather than quantifying risks to financial assets associated with nature loss, the researchers pointed out.Pointing out that the continued destruction of natural capital and loss of associated ecosystem services could yield catastrophic financial risks worldwide, the researchers observed that as natural capital continues to decline, credit ratings that ignore scientific information about nature-related risks may obscure financially material vulnerabilities.“Governments, central banks, financial regulators and international financial institutions such as the World Bank and International Monetary Fund cannot afford to ignore nature-related financial risk. Given the likely impact of nature loss on output, sovereign ratings and debt, credit rating agencies ought to explicitly include these risks into their ratings methodologies,” the researchers stressed. The risk of biodiversity loss can be precisely quantified and geographically localized.Stating that globally, more than 3.3 billion people live in countries that spend more on interest payments than on education or health, the researchers said that if countries are putting scarce resources into paying interest, they are forgoing the opportunity to make critical investments into ecosystem services, water or nature-based protection.“Ultimately, when it comes to the impact of biodiversity loss on sovereign debt, economies face a choice – pay now, by investing in nature, or pay later through reduced fiscal space, higher borrowing costs and higher interest payments that crowd out other growth-enhancing investments,” the researchers said.