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Small States: Fighting the Pandemic, Focusing on Solutions

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More than one-fifth of World Bank members are countries with a population of less than 1.5 million. These countries—designated as Small States by the World Bank’s definition—vary greatly in income levels, geography, and other features. But Small States grapple with common development challenges. Their domestic markets are small and located far away from large international markets. Economic growth is volatile. Financial pressures are massive, resulting in significant debt burden. Some small states are located on hundreds of tiny archipelagos in an open ocean, while others are landlocked. They are particularly prone to natural disasters, such as rising sea levels and extreme climatic events, which leave devastating impacts. A single cyclone or a hurricane can wipe out a small island’s annual GDP, with the poor often suffering disproportionately. Tourism, the lifeline of many Small States, is especially vulnerable to the impacts of natural disasters, hurting foreign exchange earnings.

Since the COVID-19 pandemic, international tourism has collapsed, and vital expenditures continue to mount. Governments are struggling to protect people, inject cash into their economies, preserve jobs, and provide unemployment benefits. The year 2020 has brought a sharp decline in GDP and a large increase in poverty numbers in Small States. The World Bank estimates that Small States’ contracted by 7.1 percent compared to 1.7 percent for all emerging markets and developing economies. The recovery is expected to be prolonged and extensive.

The Bank’s COVID-19 crisis response—the largest crisis response in its history—is tailored to save lives, strengthen health systems, protect the poor and vulnerable, support businesses, create jobs and jump start a green, resilient, and inclusive recovery. The Bank is providing funds for the COVID-19 vaccine deployment and for strengthening national systems for public health preparedness in many countries including **Cabo Verde, Comoros, São Tomé and Príncipe and Guinea Bissau**. We are helping The Gambia expand access to vaccines through direct purchases from manufacturers as well as through the African Vaccine Acquisition Trust. In Saint Lucia the World Bank’s financing aims to provide short-term relief to the poor, small businesses, and the most affected workers. It also aims to supports reforms related to financial resilience to disaster and education sector policies. In Fiji, the Social Protection COVID-19 Response and System Development project seeks to mitigate the impact of the COVID-19 crisis on the unemployed and to improve gender outcomes.

Strong Policy Commitments to Small States

The World Bank has well-established operational policies which can be tailored to specific conditions. Timely and focused use of these policies and some innovative approaches allowed the Bank to swiftly offer expanded financial resources to Small States.

To respond to the unprecedented demand due to pandemic, for the first time in IDA’s history, the IDA19 funding program was frontloaded. This means the entire funding of this replenishment cycle was made available in the first year, and many IDA countries have already received as much as half or even all of their allocated resources.

Twenty-three middle-income Small States are eligible for IBRD resources and are benefitting from enhanced support from the Bank. Thanks to the Capital Increase policy package endorsed by IBRD shareholders in 2018, IBRD allocations doubled and waivers were introduced for maturity premium increases. These Small States have access to the most favorable IBRD pricing.

Extraordinary Measures to Help Small States

Since the start of the pandemic, the World Bank has responded with speed and scale, expanding resources to help Small States cope with the economic downturn.

  • **IDA19 has made additional resources available **from the Crisis Response Window for health operations, strengthening health systems and addressing the social and economic impacts.

  • IDA-eligible Small States can participate in the Debt Service Suspension Initiative (DSSI) to postpone bilateral debt service payments and release resources for pandemic response.

  • The Bank recognizes that the immediate crisis response and the long-term recovery will require additional IDA resources to ensure appropriate levels of support to Small States. That is why the World Bank has called on the international community to commit to a strong IDA20 replenishment.

  • The Fast Track COVID-19 Facility under the Global COVID-19 Multiphase Programmatic Approach allowed IDA and IBRD resources to be rapidly redeployed. Some IBRD Small States have resumed borrowing and others have expanded their IBRD programs for fiscal years 2020 and 2021.

  • High-level discussions at the biannual Small States Forum focus on knowledge exchange across member states and how the World Bank Group can continue helping small states address their unique development challenges, including economic recovery from the COVID-19 pandemic.

By the Numbers:

  • To date, the Bank’s emergency COVID response has benefited **29 **SSF countries.

  • Over **$1.4 billion of financial support has been delivered from IDA to around 30** SSF countries since the start of the pandemic: around **$900 million **of that amounthas been deployed for the COVID-19 response.

  • Since the onset of the pandemic IBRD financing for SSF members has totaled around $0.8 billion.

  • As of September 2021, **15 **SSF members are participating in the DSSI with potential savings estimated at $0.6 billion during the May 2020-December 2021 period (representing 0.2-5.7 percent of GDP at country level).

In Addition to Policy, Impact on the Ground

The World Bank COVID-19 operations are already showing encouraging results in helping Small States save lives, protect the poor and vulnerable, and promote equity and inclusion in the recovery.

Bhutan

**The World Bank fast-tracked support to help Bhutan establish contact tracing and early warning systems and procure medical and testing supplies.** All hospitals and 78 primary health centers received test kits, and personal protective equipment were distributed to 20 district health authorities. Key personnel received training in infection prevention and control protocols and disease management. Isolation facilities were created in 4 national COVID-19 centers, and all hospitals prepared units to isolate suspected cases awaiting test results. With support from the World Health Organization (WHO), United Nations Children’s Fund (UNICEF), Gavi Vaccine Alliance, and the World Bank, Bhutan established one of the world’s most effective vaccination campaigns. As of May 2021, 88 percent of the eligible population (53 percent male, 47 percent female) were vaccinated with the first of two doses.

Tonga

The World Bank supported an economic and social stimulus to help Tonga respond to two shocks to its economy—COVID-19 and Category 4 Tropical Cyclone Harold. The support package included social welfare payments to 4,400 elderly Tongans and over 1,000 people living with disabilities, and financial support for secondary school students to stay in school (over 5,800 female and 6,300 male). The operation helped businesses retain their workers through **wage subsidies for 5,300 workers **from over 670 businesses hit hard by the dual crises. This is the first scheme of its kind implemented in Tonga and one of only few such instruments in the Pacific region. The government also provided financial support to over 2,100 businesses (600 formal and 1,500 informal), including urgent assistance to the tourism industry.