Caribbean storms show urgency of rethinking aid for small island states

Report
from Organisation for Economic Co-operation and Development
Published on 27 Sep 2017

By OECD Development Co-operation Director Jorge Moreira da Silva

A series of devastating storms in the Caribbean has highlighted the vulnerability of small island states, where a single hurricane can undo years of development and plunge prosperous households into poverty from one day to the next.

Hurricane Irma turned 90 percent of homes on Barbuda to rubble and left financial losses of USD 100-200 million. Hurricane Maria has knocked out power to the entire US territory of Puerto Rico.

For most developed countries, a natural disaster triggers action from national governments to provide emergency relief and compensation – witness the recent emergency spending provided by the US Congress following Hurricanes Harvey and Irma. But unlocking emergency funds is not always straightforward for small island developing states, not all of which have easy access to capital markets. Small island states often have high public debt ratios and insurance coverage among households and businesses can be limited.

Grenada is still paying the consequences of being hit successively in 2004 and 2005 by Hurricanes Ivan and Emily. Estimated losses amounted to 200 percent of gross domestic product, and Grenada is still in “debt distress” according to the International Monetary Fund. The Cook Islands are still subject to austerity measures under a 1998 debt restructuring agreement prompted by the reconstruction costs that followed Cyclone Martin two decades ago.

On top of the loss of life and demolished infrastructure, the toll of climate-related disasters weighs heavily on development prospects in small island states. As just one example, Barbuda’s efforts to achieve 100 percent green energy by 2020 will be derailed as it works to rebuild basic infrastructure and support for its citizens. The absence of financing for reconstruction in small island states risks impacting growth, education, health, and the achievement of the Sustainable Development Goals.

The OECD has long been calling on the international community to rethink approaches to support for small island states, in particular how to better manage their transition from low-income to developed country status so that they are not left vulnerable to being knocked backwards in times of natural disaster. A 2016 OECD report laid out how small islands are hardest hit by the impacts of disasters, making up two-thirds of the countries that suffer the highest relative losses due to natural disasters on an annual basis – losses that amount to 1-9% of their GDP each year. The OECD is currently developing a new body of evidence to unpack the consequences of transition from low-income status in small island states and other countries.

The relief effort for island territories hit by the recent spate of storms has prompted a public debate over the way Official Development Assistance (ODA) is allocated to countries classed as low-income, unlike humanitarian aid. Of around 50 small island developing states in the world, only 35 are currently eligible to receive ODA.

The OECD’s Development Assistance Committee of donor countries agreed in 2014 on the importance of allocating more official aid to countries most in need, including small island states, and the DAC is actively discussing how more ODA could be used to leverage additional private resources, for example through so-called blended finance – the strategic use of public or private investment with a development objective to mobilise additional finance for SDG-aligned investments in poor countries. While this will not take the place of ODA, there is a need for innovative solutions to address the dual challenge of the global development goals: to activate unprecedented volumes of resources and leave no one behind.

A new OECD report due out in October – Making International Cooperation Work for Small Island Developing States, 2017 – highlights the need to better address the specific challenges faced by small island states. We need faster responses to humanitarian needs and greater efforts to rebuild in a way that fosters long-term resilience. The report highlights the difficulties faced by small island developing states in accessing new sources of concessional finance. These include a complex system of defining eligibility for such finance, and a cumbersome array of accreditation procedures and application processes that often exceed these small island states’ administrative, institutional and technical capacities.

The OECD will continue to work more broadly to find ways the development community can better support small states or territories that grow economically to a level where they are not ODA-eligible but still face significant and unique development challenges. Our aim is to shape development strategies in a way that would ensure development gains are preserved during periods of transition and that development co-operation remains relevant to current realities.

Jorge Moreira da Silva is the Director of the OECD Development Co-operation Directorate and former Portugal's Minister on Environment and Energy.