The ratings agency Moody's is warning that NSW faces significant pressures on its budget as it grapples with climate change and increasingly severe droughts and bushfires.

Moody's also warns that "water-related stress" will be the most significant issue for Sydney by 2030, with "large scale infrastructure investment" needed to ensure the city has enough water.

A new report from Moody's says NSW will face significant extra capital spending requirements as it "seeks to adapt to climate change and improve its resilience to drought and bushfire risk".

The ongoing cost of the bushfires will have long-lasting impacts on the NSW economy, a report has found. Credit:Nick Moir

"Increasingly frequent and severe natural disasters related to climate change are likely to result in rising and recurring costs, materially increasing budget pressures and testing the state's capacity to mitigate these costs," the report says.