Credit: MIN_Photo (Flickr Creative Commons)
The need to appreciate that SIDS experiences losses disproportionately to other countries, taking cognizance of the climate change perspectives in SIDS and the importance of coherence on SIDS issues was highlighted in the meeting. Emphasis was laid on the vulnerabilities of SIDS; small economies, fragile ecosystems and the need for building capacity and streamlining access to finance. It was also pointed out that the GDP classification of countries impedes access to finance that is critical for SIDS in the wake of exogenous economic shocks.
The presentation by the IMF focused on the impact of natural disasters and climate change on small states. Disasters not only cost more in small states, but are also more frequent. The cost of disasters over time is higher for small states requiring lots of domestic resources which many of the small developing states do not have. The macro-economic impact of natural is felt through a short term impact on growth, and sometimes even on long-run growth and fiscal balances tend to be adversely affected as it also worsens the external trade balance. The poor are disproportionately impacted because they usually do not have access to credit or insurance to deal with shocks. Climate change is likely to increase disaster vulnerabilities globally and particularly for small states. Sea level rise of 50cm is expected by the 2050s based on existing carbon emissions and Small developing states will be at greater risk. The economic impact on small developing states will be felt in several sectors including coastal ecosystems, tourism and agricultural productivity. Investing in cost effective adaptation for climate change is crucial.
The presentation also discussed funding instruments for natural disasters and climate financing. Key funding instruments provided by the fund are the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI). RCF provides rapid financial support in a single, up-front loan disbursement. Access is available to low-income countries eligible for concessional borrowing through the Poverty Reduction and Growth Trust (PRGT), carries a zero interest rate, and a grace period of 5½ years, and a final maturity of 10 years. The fund is looking at increasing RCF and RFI access limits for members facing severe disasters to a disaster threshold of 20% of GDP than 30% which has kept this financial safety net out of reach for smaller states.
The Fund also helps countries to develop macro-critical policies for climate change mitigation and adaptation (carbon pricing and energy subsidies; fiscal, investment and debt management frameworks for climate-related spending, etc.), therefore this could be used for tailored assessments of policies in these areas to help countries develop strong climate change policy frameworks and qualify for access to global climate funding. It could support global efforts to combat climate change by assessing and advising on countries’ macroeconomic policies as they relate to climate change preparedness. The fund has discussed the climate change financing process with the Green Climate Fund (GCF), World Bank, and UN agencies to help catalyse climate change financing. It could also help small developing states to improve access to climate funding which is often marred by complex procedures.
SIDS submissions during the discussion were eclectic, ranging from the definition of small states as excluding other SIDS, the need for information on tools for debt consideration, the need for the fund to respond to urgent funding needs which are rarely matched by demand, the need for the fund to strengthen how it works with the regional institutions and sharing of best practice, fund not to make taxation as a primary recommendation for small states, and how the IMF framework is consistent with the UN frameworks especially following the definition of SIDS.
In closing, UN-OHRLLS underscored that for improved access to resources by SIDS, there is a need to look at their issues in a special way. One way could be creating a window dedicated to the special countries that takes cognizance of their vulnerability. The meeting also emphasized that there is a need to move the needle a bit faster than it is the case now.