Although SIDS are the least responsible for climate change, they are on the frontlines of its impacts and are recognised globally as a special case for support. And yet OECD research reveals that financial commitments to SIDS from global green funds are likely to decrease in the coming years, possibly due to a perceived low “return” on climate-mitigation projects in countries with low absolute emissions. An acceleration of the pace, scale and breadth of the transformation needed to face the climate crisis in SIDS will depend not only on the financial resources they are able to mobilise, but also to a great extent on the capacity of individuals, of organisations, and broader, systemic capacity to enable such a change.
Small Island Developing States
The OECD provides statistical data and policy analysis on external finance to Small Island Developing States (SIDS) to enhance the amount, quality and benefits of development co-operation. It also provides analysis and guidance on other issues of relevance to SIDS such as the sustainable ocean economy, capacity development for climate change, and effective development co-operation.
Key links
Key messages
As countries grow, the share of ODA within their overall mix of external finance becomes almost negligible relative to other flows such as non-concessional finance, private investment or domestic revenues. In the case of SIDS, however, their dependence on ODA remains high even on the eve of “ODA graduation” –the moment where they cease to be eligible to concessional finance.
Without adequate support for the transition, therefore, graduation often causes serious socio-economic setbacks, leaving SIDS worse-off. By focusing better on the capacity needs and vulnerabilities of SIDS, donors can help them graduate for success.
While the debt situations of SIDS vary greatly, many already had solvency problems prior to the COVID-19 crisis and were qualified as high risk or being in debt distress. As of late 2023, available International Monetary Fund (IMF) debt classifications identify that three ODA-eligible SIDS are in debt distress and fifteen at high risk of debt distress. Another nine SIDS show moderate risk or enjoy a sustainable debt outlook. These results reflect a deterioration of SIDS’ debt situation compared to the pre-COVID-19 period. Private creditors hold the bulk of SIDS’ total external debt while so-called “off-the-radar” debt owed to China could increase SIDS’ private guaranteed-like debt significantly. To alleviate these debt burdens, DAC members must work with international finance institutions and private creditors and explore solutions like debt-for-nature swaps, buybacks or climate-resilience debt clauses.
Context
Financing for SIDS
SIDS suffer from low economic diversification, often characterised by high dependence on tourism and remittances, volatility due to fluctuations in private income flows and prices of raw materials, and debt stress situations.
Furthermore, SIDS make up two-thirds of the countries that suffer the highest relative losses – between 1% and 9% of their GDP each year – from natural disasters and are acutely vulnerable to the impacts of climate change.
SIDS and graduation from eligibility for ODA
Most SIDS that are ODA-eligible are currently upper middle income countries. ODA rules stipulate that when a country surpasses the high income threshold for three consecutive years (at the time of the triennial review), it is proposed for graduation from the DAC list of ODA recipients, i.e. flows to them from DAC members can no longer be counted as ODA.
