Policy paper

FCDO and CARICOM: regional dialogue on SIDS' access to concessional finance

Published 17 August 2021

This was published under the 2019 to 2022 Johnson Conservative government

This Roundtable Dialogue was hosted by the Foreign Commonwealth & Development Office (FCDO) and the Caribbean Community (CARICOM).

SIDS leaders, development partners, donor countries and international finance institutions (IFIs) participated in a UK-CARICOM event to contribute ideas and propose actions ahead of the upcoming high-level roundtable on access to finance to be hosted by the UK, Belize, Fiji and AOSIS in October. The event featured many familiar themes including; debt, tailored systems, and eligibility criteria.

SIDS have been severely impacted by the global pandemic. Debt levels have risen and existing vulnerabilities, particularly on adaptation to climate change, have been exacerbated. Immediate action is needed to help SIDS build back their resilience, particularly in the face of further economic shocks, and natural disasters.

The Caribbean Development Bank provided examples of how SIDS’ debt levels had risen to unsustainable levels. The number of Caribbean countries with a debt to GDP ratio above 60% had increased from 9 to 13 due to the pandemic with average debt to GDP levels rising to 85%. Changes are needed to help SIDS access funding so that they can meet the Sustainable Development Goals and build back from the global pandemic.

Antigua & Barbuda in their role as chair of CARICOM and chair of AOSIS spoke of the need for greater support to build climate resilience. Graduating countries which have been forced to spend significant funds on loss and damage as a result of climate change need to greater financial support from large emitters. There is also a need to explore bespoke financial instruments including debt for climate swaps and debt restructuring to help bolster SIDS finances and build climate resilience.

SIDS leaders spoke of the need for the international community to recognise the limitations of GNI per capita as a measure of development for small states. There was a strong call for a different approach that took into account the full multi-dimensionality of SIDS’ vulnerability beyond GNI per capita. Canada spoke of the need for the multilateral organisations, including the OECD-DAC, to consider how multi-dimensional vulnerability indices (MVIs), currently being developed by the UN and the Commonwealth, could be used in conjunction with GNI per capita to inform eligibility for concessional finance. The UK said that it recognised the evidence on the problems with GNI per capita, and was concerned at the risks that this poses for small states. Others, including Italy, spoke of the need for vulnerability to be a factor in our thinking on finance.

Stakeholders noted that many of the solutions would require international political will and broad consensus in key institutions to address the impacts of these issues on SIDS. The international community have already committed to improving access finance, encouraging private sector investment, improving debt sustainability, and supporting SIDS graduating from lest developed country status. It was noted that multilateral bodies need to deliver to the various commitments made on addressing SIDS problems, recognising the position of SIDS as a special case for sustainable development, and one of the groups of states in special situations.

Speakers also raised concerns that non-concessional finance was too expensive, with SIDS perceived as high-risk borrowers. There was a frustration that lenders used limited data to make decisions on risk which resulted in high interest rates, further increasing the vulnerability of SIDS. MVIs could be one tool to help IFIs better analyse risk. The World Bank spoke of other changes which could support SIDS to reduce their risk profile including through updated insolvency regimes.

There was also frustration that despite states being close geographically with shared vulnerabilities they were treated differently by the international community. St Vincent & The Grenadines spoke of the need for a more tailored, regional approach and questioned how the international community could view SIDS as self-reliant with their limited capacity and low overall public finances. The US and stakeholders agreed on the existential threat that climate change posed to states across the Caribbean and the need for collective action to support adaptation and mitigation.

The concluding roundtable co-chaired by the UK, Fiji, Belize and AOSIS in October should lead to concrete proposals that can be taken forward by the international community to address these key issues. Attendees stressed that while many of these problems were long standing, the impacts of the global pandemic on states’ vulnerabilities mean addressing these challenges can no longer be put off indefinitely.