It is my great honour to welcome you to this important event to showcase the findings of the joint report by the World Bank and Bank Negara Malaysia, entitled "Managing Flood Risks: Leveraging Finance for Business Resilience in Malaysia."

Today, we live in an era of great uncertainty – there are rising geopolitical uncertainty, elevated uncertainty in the direction of global growth and trade, and escalating uncertainty with regard to the environment and climate. We are often told that in an era of uncertainty, the best way forward is to build resilience. Thus, the discussion today is of utmost importance, and I hope would contribute further to the objective of building resilience.

For climate, building climate resilience underscores the importance of having the ability to anticipate, prepare for, and respond to hazardous events. The escalating threat and rising tides of climate change, in particular, the increasing frequency and intensity of floods, are a major risk to the functioning of our economy. These flood events are no longer isolated incidences; they have become more frequent, more intense, and more widespread. In other words, as climate change continues to progress, climate related physical risk are no longer a low probability and high impact event, but rather it has become, a high probability and high impact event.

Government must, therefore, anticipate this shift and continually prepare for scenarios of larger risks emanating from future events and not merely envisaging a repeat of events of the past. It is against this backdrop, and ahead of the development of Malaysia’s National Adaptation Plan, that the World Bank and Bank Negara Malaysia set out to analyse the impact of floods on our economy.

While the report unearths several important findings, please allow me to share three insights which I think are pertinent for discussion today. Firstly, by assuming no further adaptation efforts are being implemented today, the assessment is that the impact of a major flood event in 2030 on the domestic economy could be significant.

Secondly, the report reaffirms findings from earlier studies that our small and medium enterprises (SMEs), which are the backbone of our economy, will be disproportionately affected by floods. Not only do they often lack the resources and know-how to effectively manage flood risks, which can lead to disruptions in operations, financial losses, and even business closures; SMEs also face greater barriers in obtaining financing both prior to flood events to invest in flood resilience, as well as ex-post, to recover from flood events.

And, thirdly, the findings from the report reveal that the impact of floods could be significantly reduced by private sector actions, and this is namely by investing in supply chain resilience. These actions can provide businesses with an effective safeguard against the impact of floods.

Based on these findings, we can also broadly conclude that; firstly, while we have made progress in adapting to the realities of climate change, such as investing in flood mitigation infrastructure and fostering community awareness, more needs to be done to sustain the continued resilience of our economy.

A broad spectrum of interventions is needed in preparing for future incidences which are expected to have a more material impact on the economy going forward. Some of the key areas that Malaysia can focus on include enhancing long term planning and investment in adaptation and resilience. A recent study by Vinod Thomas based on three decades of work on floods has shown that, while it increases the fiscal burden in the immediate term, disaster proofing to an infrastructure adds less than a tenth to the cost of rebuilding a new one^[1].

Other interventions include ensuring the availability and accessibility to comprehensive flood data for better analytics and early warning systems as well as, the provision of targeted support for the most vulnerable.

Secondly, given the importance of building resilience, pre-emptive policy and initiatives must be integrated from the outset. This is not only in terms of infrastructure proofing and disaster response systems but also to strategically integrate them in national development strategies and roadmaps, which include thinking through our economic ecosystems such as strengthening the economic supply chains.

Thirdly, these pre-emptive policies and initiatives must be complemented by the support from the financial sector. The financial sector stands as a catalyst in our collective journey towards a flood-resilient Malaysia. The financial sector possesses the ability to mobilise capital, develop innovative financial solutions, and incentivise risk-reducing behaviours among businesses.

By offering tailored insurance and takaful solutions, accessible financing options for flood mitigation measures, and targeted capacity-building programs, the financial sector can empower businesses to better anticipate, absorb, and adapt to flood shocks. It is thus critical for policymakers to create an enabling environment and for the financial sector to develop and deploy innovative financial solutions that cater to the specific needs of Malaysian businesses.

These are some of my thoughts in brief with regard to the issue. I am certain that all of these and more will be discussed in depth this morning. Before I wrap up, allow me to take this opportunity to extend my appreciation to those in the room that contributed to the invaluable data, insights, and experience that were critical to the analysis and outcomes of this report.

My hope is that the findings and insights from this report will form an important basis for policy discussions, shaping actions of all stakeholders and economic agents and ultimately contributing towards enhancing resilience of the Malaysian economy to future occurrences of climate related physical risk events.

With this, I wish you an engaging discussion ahead.

Thank you.

Bank Negara Malaysia
27 May 2024

[1] Thomas, V. (2023). Risk and resilience in the era of climate change. Springer Nature Singapore Palgrave Macmillan.

Read the Report: Managing Flood Risks – Leveraging Finance for Business Resilience in Malaysia