Mobilizing financing for development is at the heart of development in SIDS, and without it SIDS will not be able to take the action they need to address the climate crisis, build sustainable economies from their ocean resources, or take advantage of the digital revolution. This includes pursuing innovative instruments in support of SIDS in addressing the SAMOA Pathway priorities and the 2030 Agenda, as well as creating synergies between climate and economic goals to support SIDS in aligning recovery with the Paris Agreement. Through 2023, four key areas of innovative finance will be priorities for SIDS, including blended finance and risk mitigating solutions; financing for conservation and debt restructuring using blue bonds and resilience bonds; private sector investment in natural and manmade infrastructure through green bonds; and domestic resource mobilization and public investment to leverage other sources of finance for sustainable development.
In 2023, the Multidimensional Vulnerability Index (MVI) will play a vital role in access to concessional financing and better terms for existing debt. SIDS have long advocated for a multidimensional vulnerability index tthat adequately capture the particular vulnerabilities of SIDS to guide programmatic support, viable debt service payment and financing for sustainable. The call for exploration of criteria based on vulnerability was repeated in the Barbados Programme of Action, mentioned in the Mauritius Strategy and re-echoed in the SAMOA Pathway. It is time that the MVI is integrated into for SIDS’ financing so they can receive the support needed for their recovery and building forward better.
Finance opportunities in SIDS are deeply linked to the climate and oceans. Debt-for-nature swaps have attracted significant interest in the Seychelles and Belize, reducing external debt by US$ 21 million and US$ 364 million, respectively, although SIDS will be working to realign subsidies with community ideals and shifting from unsustainable subsidies to natural asset reconstruction. At COP27, Fiji launched the first Sustainable Bond Framework to sustainably leverage Fiji’s ocean-based resources to support its post-pandemic recovery and economic diversification in accordance with its National Ocean Policy, providing an outline for SIDS to access alternative funding and capital markets for growth. SIDS will be moving forward with Blue Economy finance as a primary priority such as the Global Fund for Coral Reefs which supports blended finance initiatives that unlock private investment in commercially viable coral-positive businesses with diversified investment programs.
Green, blue, and thematic bonds are becoming increasingly popular, but due to high levels of indebtedness in SIDS they need to be developed with care. As of December 2022, 14 of the 20 SIDS rated by the World Bank and IMF Debt Sustainability Analysis were either in debt distress or high danger of debt distress. Between 2022 and 2027, SIDS will have to pay US$ 40 billion in debt service. Ensuring SIDS do not default during this critical period of climate action is paramount to achieving SDGs and Paris goals. Heading into 2023, private and sovereign debt need to agree on a mechanism to avoid defaults where possible and use collective action clauses to refinance existing debt, aided by avoiding fragmentation of financiers and independent assessments. Integrated National Financing Frameworks , implementation of a dedicated Debt Service Offering, and performing Development Finance Assessments are all key ways UNDP will continue to support SIDS. One of the goals of debt relief should empower governments to lay the foundational investment for sustainable development by understanding and addressing systemic risks and shifting from a reactionary approach to a holistic and anticipatory approach to achieve a systemic solution.
Through these initiatives and new tools, SIDS are strengthening their ability to recover from vulnerabilities and shocks, building forward stronger and better, and generating sustainable lives for all through strategic private sector partners, strong coordination with development partners, and public-private partnerships. A successful approach to financing SIDS’ recovery is one that will blend different types of financing from different types of partners to cover all different needs and guarantee the success for SIDS’ bluer and greener recovery.
Read the full 2023 and Beyond SIDS Bulletin.