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The Bank for International Settlements is not an institution known for alarmism.
Last year, though, it raised the alarm on water.
In 2024, drought conditions spread across nearly 72% of Mexico, reservoirs dropped to record lows, and the price of cilantro — a staple — rose by 400%.
In India, a lack of water to cool thermal power plants between 2017 and 2021 resulted in 8.2 terawatt-hours of lost energy — enough to power 1.5 million households for five years.
And in California, up to 900,000 acres of farmland are at risk of being forced out of production, threatening nearly 50,000 jobs.
These are early signals of what the BIS is now explicitly calling a macroeconomically relevant concern: a single standard deviation increase in water scarcity reduces GDP growth by up to 0.16%, cuts fixed investment by up to 0.42%, and pushes consumer price inflation up by between 2.9% and 3.5%.
Now, water isn't just something people drink. It’s an input into almost everything the economy produces.
Agriculture accounts for roughly 70% of all global freshwater withdrawals. Manufacturing, energy generation, and semiconductors all depend on it too.
When it gets scarce, production costs rise across the board, shortages travel through supply chains, and grocery bills go up thousands of miles from the drought that caused them.
About 4 billion people — roughly half of the global population — experience severe water scarcity for at least one month a year.
Twenty-five countries are currently using more than 80% of their renewable water supply annually, meaning even a short drought puts them at risk of running out altogether.
The global water crisis already costs developing economies an estimated $260 billion a year. If current trends continue, global GDP could shrink by an average of 8% by 2050, rising to 10–15% in lower-income countries. For context, the 2008 financial crisis contracted global GDP by around 1.8%.
And unlike a financial crash, a water crisis doesn't have a central bank response.
What makes this particularly uncomfortable for financial markets is that almost none of it is priced in. Eight sectors collectively holding $1.4 trillion in debt face high water management risks, yet none of that is reflected in their borrowing costs.
Sovereign bonds issued by water-stressed nations carry no water premium. In Hungary, where stress testing has actually been done, a severe drought scenario could reduce domestic GDP by 4–7% and push the debt-to-GDP ratio up by 2.8%.
The risk is real and already measurable, but unlike Hungary, most countries aren't measuring it.
So the gap between where policy is and where the risk actually sits remains enormous. Freshwater ecosystems have been valued at $58 trillion, roughly 60% of global GDP. That's the scale of what's going quietly unaccounted for.
The good news, if there is any, is that fixing this is not prohibitively expensive. Sustainable water management globally would cost roughly 1% of GDP — about 29 cents per person per day.
Every dollar invested in water access and sanitation returns an average of $6.80 in economic benefits from lower healthcare costs, higher productivity, and fewer premature deaths.
Water has simply never been treated as something that could run out. And economies don't tend to build the frameworks for risks they've never had to price.
In 1994, Rwanda experienced one of the worst humanitarian catastrophes of the twentieth century. In the space of a hundred days, somewhere between 500,000 and a million people were killed. And the economy collapsed by roughly 50% in a single year.
Thirty years later, people are comparing it to Singapore.
That comparison is partly earned and partly misleading, and understanding the difference reveals something important about what it actually takes to build a modern economy from nothing.
In our latest video, we look at how Rwanda went from complete collapse to one of the most business-friendly countries in the world, what that transformation actually cost, and whether Rwanda is genuinely becoming Singapore or it's just a good story to tell investors.
Rwanda has built something genuinely remarkable. The question is whether the foundations are solid enough to last.
