Policy brief

Sustaining development in
Small Island Developing States
A reform agenda
Emily Wilkinson, Michelle Scobie, Courtney Lindsay, Jack Corbett,George Carter, Rachid Bouhia and Matthew Bishop
July 2021
SeriesResilient Islands

Key messages
Small Island Developing States (SIDS), or Large Ocean States as some prefer to be known, are at a
critical juncture: they are reliant on reforms in global institutions that need to happen quickly.
SIDS have immense potential to innovate and adapt to global conditions, but they are highly
vulnerable to climate change impacts and other external shocks and face significant structural
challenges in managing these risks.
Younger generations of SIDS citizens face the triple jeopardy of crippling debt, a degraded naturalenvironment and frequent, devastating disasters.
SIDS have a high need for climate finance – particularly for adaptation and resilience – but theyoften have the weakest capacity to access it and are far from obtaining the volumes they need.
UN Member States have acknowledged that the SIDS are a special case for sustainable
development, but this needs to translate into greater support and coordination of climate anddevelopment cooperation.
Reforms are needed across development assistance, debt and climate finance, using common
definitions and criteria for eligibility and towards the common goals of honouring commitments
made under the Paris Agreement and SAMOA Pathway and to improving aid effectiveness.

Acknowledgements
The authors would like to thank Rebecca Nadin, Annalisa Prizzon and Wassim Dbouk for reviewing
this policy brief, as well as participants in the expert roundtable ‘Small Island Developing States(SIDS): Are we reaching a viability tipping point?’ (2 June 2021), who commented on the working
paper that is the basis of the policy brief.
About the authors
ORCID numbers are given where available. Please click on the ID icon next to an authors’ name inorder to access their ORCID listing.
Emily Wilkinson is a Senior Research Fellow in the ODI Global Risks and Resilience Programme
and Chief Scientific Adviser to the Climate Resilience Agency for Dominica (CREAD).
Michelle ScobieID is a lecturer and researcher at the Institute of International Relations at the
University of the West Indies, St. Augustine.
Courtney Lindsay is a project development consultant with the Inter-American Development
Bank.
Jack CorbettID is Professor of Politics at the University of Southampton.
George Carter is a Research Fellow in Geopolitics and Regionalism at the Department of PacificAffairs at the Australian National University.
Rachid Bouhia is an economist in the United Nations Conference on Trade and Development.
Matthew BishopID is a senior lecturer in International Politics at the University of Sheffield.

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This work is licensed under CC BY-NC-ND 4.0.
How to cite: Wilkinson, E., Scobie, M., Lindsay, C., Corbett, J., Carter, G., Bouhia, R. and Bishop, M.
(2021) Sustaining development in Small Island Developing States: a reform agenda. Policy brief.
London: ODI (www.odi.org/en/sustaining-development-in-small-island-developing-states).

1 ODI Policy brief

Sustainable development constraints
in SIDS
Small Island Developing States (SIDS) have faced pivotal moments when policy agendas
have undergone a marked shift in emphasis and direction – for example, the loss of tradepreferences for exports to Europe under the Lomé Convention (Girvan, 2010; Heron, 2011;2013). The confluence of increased attention being paid to climate change adaptation at
the 26th UN Climate Change Conference of the Parties (COP26) in Glasgow, post-Covid-19‘green’ recovery and debt restructuring, and shifting donor agendas (notably in the UnitedStates and United Kingdom) may well constitute one of these pivotal moments.
UN Member States have affirmed that SIDS are ‘a special case for sustainable development’due to their unique characteristics and needs. But for this designation to have meaning,
significant reforms are needed to avoid debt defaults and deterioration in income levels
and living standards in SIDS due to the devastating impacts of the pandemic, environmental
degradation and extreme weather events. SIDS urgently need financial support to transformtheir economies and strengthen their resilience to future shocks. These reforms need to
be undertaken simultaneously to avoid siloed approaches and with a view to addressing thelong-term structural vulnerabilities and challenges that many SIDS face in managing risks.
SIDS have long pursued unconventional economic development strategies, often withgreat success. Equally, because of their pronounced susceptibility to exogenous shocks,
their progress remains fragile and can be set back suddenly and dramatically. Nonetheless,this vulnerability–resilience framing, which has commonly been used to analyse SIDS, has
focused too much on intervening variables – exogenous shocks and endogenous capacity
to mitigate them. In doing so it misses the wider enabling environment on which the relative
economic success of these countries has been based: namely a geopolitical context in whichinterstate conflict has been rare, borders porous, openness and interconnectedness prized,
and the natural environment relatively well preserved. This context has provided stability
and opportunities for SIDS to identify and exploit niches (Bishop et al., forthcoming). The
immediate post-independence era was one in which aid, trade preferences and relatively
open migration schemes underpinned agricultural commodity exports and labour mobility(Heron, 2013). This gave way to a neoliberal era typified by distinct niche strategies associatedwith globalisation (Payne and Sutton, 2007), during which SIDS were able to sustain relatively
high levels of growth compared to other developing regions by harnessing financial services,
unlocking the potential of global tourism and tapping into large inflows of remittances.

2 ODI Policy brief

We are now entering a new era characterised by global economic upheaval (wrought by the
2008–2011 global financial crisis and the Covid-19 pandemic) and greater external surveillance ofoffshore finance, the secondary impacts of the pandemic, cracks in the multilateral system, rapidly
degrading natural environments and accelerating climate change.
This represents a turning point for SIDS. As the global context changes, so too does their ability
to achieve genuinely sustainable development – that is, development which is socially andecologically viable and sustained and enduring over time. Successfully exploiting new economic
niches as they emerge to achieve new development goals via innovation and entrepreneurialism– such as the new opportunities presented by the blue economy – will be crucial in generating
development that is both sustainable and sustained.
But this is not dependent simply on judicious national policy and action: the global context
is crucial too. Just as traditional avenues for national development shrink and the challenges
deepen, there may be a window of opportunity for SIDS to shift global priorities as donors
and international organisations seek to make good on the international community’s pledge,
articulated in the ‘Small Island Developing States Accelerated Modalities of Action – SAMOA
Pathway,’ to treat these states as a special case for sustainable development (UNGA, 2014).
This policy brief outlines three intersecting routes to creating more favourable conditions for
SIDS’ climate resilience and sustainable development:• revisiting eligibility criteria and improving access to official development assistance (ODA)• a fairer share of – and improved access to – climate finance• more debt relief and long-term debt restructuring.
Coordinated reforms across these three agendas could help redress some of the challenges faced
by SIDS in a changing geopolitical context and a warming world.

Revisiting eligibility for concessional
finance
SIDS encounter a number of difficulties in accessing the development assistance that they need.
Most SIDS are middle-income countries (MICs) and many are not eligible to receive concessional
finance from multilateral financial institutions. While the World Bank (2019) has extended special
treatment to small states in terms of access, financing volumes and concessionality, the evidence
suggests that as countries approach or join the MIC group, donor governments scale down theirdevelopment cooperation programmes (Jalles d’Orey and Prizzon, 2019).

3 ODI Policy brief

Some SIDS are high-income countries (HICs) and therefore ineligible for ODA (after threeconsecutive years of being a HIC, countries are removed from the list of ODA-eligible countries).
Many more SIDS will graduate in the coming years – including Antigua and Barbuda, Palau, andPanama, which will graduate in January 2022 instead of 2021 as expected because of the Covid-19
crisis (Prizzon and Pudussery, 2020).
It has long been argued, however, that gross national income (GNI) per capita is a poor or evendeeply misleading measure of developmental progress in SIDS (Bishop and Murray-Evans, 2020).
This is for the following reasons:• Dividing the sum of national income among a small population inherently overstates living
standards in the community.
• Taking a snapshot in time tells us little about changes in growth rates (many SIDS have sufferedreal-term stagnation for decades).
• GNI per capita tells us little about the distribution of income levels (most SIDS are extremely
unequal, with small elites capturing most gains).
• SIDS are generally dependent on external finance and enclave forms of development, such as
tourism or offshore finance, so rents often accrue to outside actors (Bishop, 2013).
Recent studies suggest that SIDS’ graduation from the Least Developed Country (LDC) category
happens through a combination of limited diversification towards services, in particular tourism,
and investment in human capital (Quak, 2019). This concentration on a few service sectors
heightens vulnerability to external shocks. Added to this, as SIDS transition, private capital flows –such as foreign direct investment and remittances – do not increase as fast as for other countries,
and levels of debt increase. This makes it increasingly difficult for SIDS to make the capital
investments necessary to buttress themselves against climate change impacts.
SIDS at all levels of per capita income will require substantial external assistance to adapt
to climate change.1 Meanwhile, signatories of the Paris Agreement have committed
to looking at all financial flows (public and private, domestic and international) andensuring that these support a transition to a low-greenhouse gas emissions, climateresilient world.2 ODA allocations to SIDS are thus not only an issue of development
effectiveness and financial stability but also fulfil a global commitment to help climatevulnerable states transform their economies and strengthen their resilience.
The Multidimensional Vulnerability Index (MVI) being developed for SIDS by the United
Nations offers great potential for developing additional (or exceptional) eligibility criteria for1

2

At present, SIDS receive very small amounts of external financial assistance relative to their needs.
The Organisation for Economic Co-operation and Development (OECD) estimates that Total Official
Support for Sustainable Development to all SIDS in 2017, which includes ODA, concessional and nonconcessional finance, amounted to $4.1 billion (OECD, 2020a).
Article 2.1c of the Paris Agreement (2015).

4 ODI Policy brief

concessional finance that align with commitments under the Paris Agreement. The MVI could
be used to improve resource allocation across all international financial institutions and help
SIDS that graduate in the future to access concessional finance. This would support a transition
to more sustained models of development in SIDS in combination with increased climate
finance and debt reduction.
In parallel to discussions about eligibility criteria, development partners also need to create more
systematic and longer-term approaches to strengthening national capacities and overcoming
absorptive constraints (Quak, 2019). High transaction costs are a structural problem for small
administrations and are not easily avoided (Corbett and Veenendaal, 2019). There are, however,forms of assistance, such as budget support and long-term capacity development programmes,that can help ensure that it does not prevent SIDS from accessing and absorbing external financefor resilient development programmes. These types of development assistance should become
more prominent in the sector and should focus on the needs of SIDS.

Improving access to climate finance
SIDS have some of the highest needs for climate finance – particularly for adaptation andresilience – but they often have the weakest capacity to access it (Robinson, 2019) and are far
from obtaining the volumes they need. This is even though scientific reports (IPCC, 2019) andthe United Nations Framework Convention on Climate Change (UNFCCC) recognise theparticular vulnerability to climate change of low-lying coastal, arid and semi-arid areas or areas
with fragile mountainous ecosystems (UNFCCC, 1992). Article 9.4 of the Paris Agreement statesthat SIDS and LDCs are particularly vulnerable to the adverse effects of climate change andtherefore need public and grant-based resources for adaptation because of their significant
capacity constraints (UNFCCC, 2015).
Responding to this vulnerability, the Green Climate Fund (GCF), which was established within
the framework of the UNFCCC, committed to prioritising SIDS and LDCs in adaptation efforts
and providing 50% of its funding to adaptation, of which half is to be spent in LDCs, SIDS andAfrican states (GCF, 2020).
However, developed countries’ commitment to scaling up their climate finance to at least
US$100 billion per year by 2020 has not been met. In addition, most public climate finance isprovided in the form of loans and other non-grant instruments: in the period 2017–2018, aroundhalf of climate finance to SIDS was non-concessional (a higher proportion than for public climate
finance overall – at 40%) (Oxfam, 2020).
A new climate finance goal, which is on the agenda for COP26, will need to be quite different
from its predecessor in both content and complexity. Unlike development or humanitarianfinance, climate finance is based on an explicit historical responsibility for climate change, in5 ODI Policy brief

addition to a moral imperative to support those most severely affected. Yet, to meet the targets
in the Paris Agreement, climate finance must also be used effectively to drive the transition
to low-carbon, climate-resilient economies and societies. This is especially important for
SIDS, and in particular for those islands whose very existence depends on this transition.
Now is the time for a robust debate on appropriate levels of concessionality for climate finance– particularly for adaptation – and what a ‘fair share’ of climate finance should be for SIDS given
their high vulnerability to climate change impacts and low contribution to global warming. SIDS
have been acknowledged as a special case for sustainable development, so should there be a
climate finance goal for SIDS to help realise this?

Reducing the debt burden
The collapse in tourism revenues and the economic slowdown caused by Covid-19 haveaggravated the debt positions of SIDS, putting them at greater risk of defaulting. But these debt
problems have deeper roots than the recent crisis. Even before the pandemic, in 2019 external
debt in 2019 accounted for 62% of gross domestic product on average in SIDS, compared with
29% for all developing countries and economies in transition (UNCTAD, 2020). Large-scaleborrowing from public and private foreign creditors, particularly after disasters, has narrowed
these countries’ fiscal space, limiting their options to invest in adaptation and resilience (Bouhia
and Wilkinson, 2021).
All SIDS except Antigua and Barbuda have since 2020 benefited from the International Monetary
Fund’s Covid-19 Financial Assistance and Debt Service Relief, and 13 SIDS have benefited from theG20 Covid-19 Debt Service Suspension Initiative (DSSI) (World Bank, 2021), but official support isneeded to address the short- and longer-term debt problem in SIDS.
First, SIDS need to be given more ‘breathing space’. Given the looming debt crisis, morecomprehensive measures are needed – and fast. In particular, the G20 DSSI eligibility criteria
should be extended so that SIDS with relatively high per capita income levels can also benefit
from ‘debt standstills’ (OECD, 2020b). The DSSI also needs to cover all creditors (OECD, 2021)– bilateral, private and multilateral. Given the alarming levels of debt distress in SIDS, private
creditors should be encouraged to join temporary debt repayment suspension programmes(Prizzon et al., 2021) to allow time for economic recovery and avert huge financial losses in the
future (should the country default or require debt restructuring).
Second, an urgent assessment of the long-term debt sustainability of SIDS is due. Debt repayment
needs to be compatible with restoring and maintaining sustainable and inclusive growth beyond
the Covid-19 crisis, as well as balanced fiscal and trade trajectories. SIDS need to be able to invest

6 ODI Policy brief

to build the resilience of their economies to climate change and other external shocks. Sometype of debt relief or restructuring initiative that goes beyond a temporary standstill is therefore
needed (Humphrey and Mustapha, 2020).
One option being considered by SIDS’ governments as a solution for heavy indebtedness isswapping debt for climate change adaptation and mitigation measures. So-called ‘debt-forclimate swaps’ offer debt forgiveness to countries that commit to funding conservation andnatural resource management, resilience and renewable energy projects. These need to be
applied at scale – and without the kind of conditionalities that hinder countries’ own climatechange agendas. Implementation may be challenging, involving time-consuming negotiations
and extensive monitoring of funds.

Conclusions
SIDS are at a critical juncture in their relatively short post-independence histories, and reliant on
urgently needed reforms in global institutions. Building resilience to climate change and othershocks means tackling both debt and climate crises simultaneously. This will allow SIDS to use
different sources of external finance to invest in resilience, diversify their economies and develop
skills and capacities so they can be flexible in responding to climate change impacts and othershocks in the future.
SIDS have immense potential, but they also face significant structural challenges in managing
risks because of their size, openness and other factors. They have successfully pursued niche
development opportunities in service sectors such as tourism, which has generated income but
resulted in environmental degradation and increased exposure to natural hazards, high levels of debt
when disasters occur (due to lack of diversification) and limited options for reducing that debt.
This presents a triple jeopardy for young people in SIDS, who will inherit crippling debt, adegraded environment, and frequent and destructive disasters. There is a historical and moral
obligation for development partners to help SIDS overcome the structural challenges that they
face – even if these cannot actually be removed.
The SAMOA Pathway adopted by the UN on 14 November 2014 acknowledges the SIDS’ special
case for sustainable development, but this needs to translate into greater support and improved
coordination of climate and development cooperation. Reforms are needed across development
assistance, debt and climate finance, using common definitions and criteria for eligibility andtowards common goals of honouring commitments under the Paris Agreement and SAMOA
Pathway and improving aid effectiveness.

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