Caribbean countries are Small Island Developing States (SIDS) that exhibit mixed levels of human development, are highly dependent on few sectors of the economy (e.g., hydrocarbons, tourism or financial services), and have high levels of public debt. These countries also rely on international capital markets in different ways to finance fiscal deficits and fund development. At the same time, Eastern Caribbean countries face special development challenges, such as high vulnerability to environmental and economic shocks, limited capacity to mobilize domestic resources, and high per capita costs for essential services provision. All these characteristics pose important challenges for their development and achieving the SDGs. A crucial aspect in this situation is the constraints these countries face in access to development financing. On one hand, high levels of public debt reduce their capacity of further accessing international capital markets. On the other hand, given their position in the classification of economies, access to development aid in the form of concessional credits or grants is scarce.
Moreover, climate and environmental aid have not materialized as expected, despite their disproportionate vulnerability to climate change and other environmental shocks. Thus, it has been argued that the current classification of economies based on national income imposes a strong impediment in financing their development and their capacity to achieve the SDGs. This situation has been exacerbated with the COVID-19 crisis, with the limitations of accessing international funds becoming a major constraint in the response to the pandemic by these countries and their ability to rebuild and accelerate their economies.
The side event entitled “Towards a new classification for Caribbean economies” will be the first of a series of three events that will be hosted by UNDP in 2021. The goal of this first event is to initiate discussions on the need of moving from purely income-based classifications for SIDS to categorizations based on vulnerabilities and to reach awareness within the international community. The objective is to analyze the need for a new classification for Caribbean economies given common development challenges, high vulnerability to exogenous shocks, problems of debt sustainability and access to development finance, and to provide a forum to glean recommendations on how this transition could be achieved. Future events will focus on specific methodologies and indexes to measure vulnerability, and will cover other SIDS regions, expanding also the participation to other UN entities and other actors outside of the UN System.