Policy paper

Responding to COVID-19 in small island developing states: access to concessional finance

Published 17 August 2021

This was published under the 2019 to 2022 Johnson Conservative government

The roundtable dialogue was hosted by the Alliance of Small Island States (AOSIS) and the Permanent Mission of the United Kingdom to the United Nations.

A number of speakers from Small Island Developing States (SIDS), development partners, donor countries and IFIs participated in the UK-AOSIS event on access to concessional finance, which aimed to contribute ideas and actions to the upcoming high-level roundtable hosted by the UK, Belize, Fiji and AOSIS in October.

All countries are hurting due to the pandemic. SIDS, however face an existential crisis not only due to the health, economic and social repercussions of COVID-19, but also due to climate change and natural disaster.

Many participants said that since the Barbados Programme of Action, where SIDS’ inherent vulnerabilities were recognised, there has been much talk, but very little action. Climate change, natural disasters, size, economic vulnerabilities, including access to finance and debt, were the key issues. Several development partners spoke of the need to finally recognise the true scale and impact of these vulnerabilities on SIDS.

Multilateral organisations raised their own differentiated approaches. In recognising SIDS as being in a special situation, action had been taken to try and tailor approaches, and criteria, to their challenges. These steps have included using population size as a basic element consideration, recognising that micro-states (populations less than 200,000), face particular problems.

Recognising the limitations of GNI per capita as a measure of development, there was a strong call for a different approach that takes into account the full multi-dimensionality of SIDS’ vulnerability.

A range of solutions were put forward, but with a note of caution that much depended on international political will to engage with the challenges facing acutely economically and climate vulnerable states.

While the Multidimensional Vulnerability Index (MVI) was a major topic of discussion by attendees, the dialogue also featured the role of ODA, concessional finance, debt restructuring and grants more broadly. Emphasis was placed on the need to address debt sustainability, weak tax bases, perceptions of risk and liquidity. It was pointed out that SIDS are unlike any other group of developing countries when they graduate from ODA, with problems and characteristics that are similar to states at lower income levels. At graduation, SIDS were more ODA dependent and would often lose more than a quarter of their external finance, which needed to be urgently addressed.

It was suggested by some that actions to address criticisms of eligibility criteria would need to take into account the finite nature of resources. Any reform would need to avoid creating risks for others, while at the same time addressing the unique vulnerabilities of SIDS.

One part of the problem is that access to non-concessional finance is too expensive, due to the perception of risk associated within SIDS and a lack of reliable data. One possible solution could be the creation and adoption of an MVI as a way to better inform lenders of risk.

The second and final roundtable to be held in October should lead to concrete proposals that could be taken forward that will find lasting solutions to addressing financing for SIDS. Many participants noted the time for talk was over and now was the time for action.