Debt costs overshadow climate finance in small island states: report

A group of 37 island states, home to some 65 million people, “urgently need to increase their fiscal space to tackle the multiple challenges and crises facing them,” wrote Iolanda Fresnillo, one of the authors of the European Network on Debt and Development (Eurodad) report.

The Eurodad report found that the island states from Guinea-Bisseau to the Dominican Republic to Samoa received just $1.5 billion in climate finance between them between 2016-2020.

Over the same period, 22 of the nations paid more than $26.6 billion to their external creditors, which comprises 50 non-governmental organizations, it said.

Public debt levels in the island states had risen from an average of near 66% of GDP in 2019 to nearly 83% in 2020 and were set to remain above 70% until 2025, the report found.

This in turn meant governments needed to spend more revenue on debt servicing, with countries like Belize, Cape Verde, Dominican Republic, Jamaica, Maldives, Grenada and Papua New Guinea allocating between 15%-40% to pay their external creditors, it said.

More countries had turned to the International Monetary Fund for help, with the number of countries having programs with the fund jumping from three in 2019 to 20 between 2020 and 2021.

In June, the fund’s executive board approved a $60 million program for Cape Verde while Barbados struck a deal for $293 million in late September.

The report found that more than 80% of the island states were in debt difficulties under criteria established by the IMF and World Bank Debt Sustainability Analysis, or by civil society groups Debt Justice UK and Jubilee Germany.

How to shore up fragile, smaller economies buckling under the strain of fallout from Covid-19 and Russia’s war in Ukraine is poised to garner much focus this week when policymakers from around the globe gather in Washington for the annual IMF/World Bank meeting until Oct. 16.