International funding organizations should consider a wider development approach to meet the needs of small island development states according to a letter co-authored by Prime Minister the Honourable Dr. Timothy Harris and Dr. David P. Doyle, Ambassador of St. Kitts and Nevis to the United Nations Educational, Scientific and Cultural Organization (UNESCO). ). The letter was published in all of The Financial Times’ International editions – Europe, USA and Asia – on March 30th and on www.ft.com on March 29th.
The co-authors, in their letter titled “New approach to funding is required for small island developing states,” call for a fresh approach to the way in which levels of official development assistance or ODA funding are determined and distributed to Small Island Developing States (SIDS).
“A revised set of SIDS development funding criteria are needed,” write the co-authors, who add that, “Key indicators used by multilateral and bilateral donors should integrate the wider development needs of SIDS, notably economic vulnerability and natural hazards. ‘Structural gaps’ should be identified – beyond per capita income – embracing poverty, investment and savings, productivity and innovation, infrastructure, education, health, fiscality, gender and the environment.”
The structural gap approach posited by the Prime Minister and the Ambassador of St. Kitts and Nevis to UNESCO argues against an over-reliance on per capita income, which is currently the most important criterion used in development cooperation funding and an impediment to securing ODA funding and IMF loans.
Under the structural gap approach, obstacles to sustained growth (“structural gaps”) are duly recognized for their critical impact on Small Island Developing States. For instance, a high-income Sid may be beset by developmental challenges that are out of its control, such as a small population size and vulnerability to droughts, hurricanes and other environmental shocks, and would therefore require special consideration for continued assistance at preferential rates.
Dr. Harris and Dr. Doyle lay out the case for this in The Financial Times. “SIDS are a special case in funding terms, characterised by vulnerability linked to small size, small populations, limited resources, remoteness from the international markets, and diseconomies of scale. The damaging effects of natural hazards compound these factors,” they write.
However, the per capita income approach that is in vogue looks at a “high income: non-OECD” SID like St. Kitts and Nevis as having been upgraded, through a process called graduation, by the Organization for Economic Cooperation and Development (OECD), the World Bank and other international organizations. Having graduated to high-income level, the Federation is no longer eligible for the preferential borrowing rates it previously had access to when it was classified as middle-income.
The co-authors state in the Letter to the Editor that persistent lending shortfalls continue to challenge growth prospects for Small Island Developing States, which would greatly benefit from a fresh approach to ODA funding. A fresh approach, they state, would make the potential “to reduce debt, strengthen institutional capacity, galvanise ICT and infrastructure investments and mitigate climate change” possible.