1. Members of the Small States Forum met virtually on October 8, 2020.
2. Small economies are facing an unprecedented social and economic crisis due to the COVID-19 pandemic. A collapse in tourism, falling commodity prices, and diminished remittances have sharply increased poverty and unemployment. Some Small States are witnessing a dual shock from the health impacts of the pandemic and recent natural disasters. Most small economies are in recession, with GDP falling by 7.6 percent in 2020 on average, and over 20 percent in some tourism-dependent economies (World Bank staff estimates).
3. Small States’ response to the crisis has demanded all of our resources, capacities, and international support available to us. All countries have initiated public health measures to contain the pandemic as well as economic relief packages to protect employment and businesses. Declining revenues and increased spending have put most of our countries under severe fiscal stress.
4. The pandemic’s course is uncertain but advances in vaccines and therapeutics are promising. People will have the confidence to resume normal activities only when safe and effective COVID-19 vaccines become widely available. Such a vaccine must not only be treated as a social good and be made affordable, but we must be given priority access as our economies have been the hardest hit.
5. This pandemic has reinforced our vulnerability to pre-existing structural challenges, including limited capacity and economies of scale and high-cost public services. These have been compounded by our vulnerability to climate change and by ever-increasing pressures in the provision of correspondent banking services that threatens our external trade business and inward investment. Against this background, the pandemic is closing businesses, leading to job losses and economic distress that may permanently scar the sustainable development of Small States.
6. To get back on track, Small States will need to rebuild fiscal buffers, protect viable businesses, increase disaster resilience, and continue to invest in diversification and new drivers of growth. Small States authorities are already taking measures to reduce impacts, including policy measures and protocols to revive tourism and travel. These are challenging objectives, even in good times, and Small States do not have the resources to meet them.
7. The pandemic has exacerbated the debt vulnerabilities of many small economies. Despite efforts at fiscal prudence, many Small States have sizable public debt, due to their narrow and volatile revenue base, combined with low growth and expenditure shocks. COVID-induced GDP losses and higher financing needs will significantly worsen the debt positions of Small States. There is a need to re-engineer the way we will look at debt financing, so it does not become a constraint in dealing with the COVID-19 pandemic and other development issues. In this context, we call for an urgent meeting to address debt burdens and a resolution to the rising debt overhang.
8. Most Small States have limited creditworthiness and access to external private finance. Financing conditions in the past were already tightening due to de-risking and tightened severely with the pandemic. We welcome the relief provided by the Debt Service Suspension Initiative (DSSI), which has benefited twelve Small States so far by freeing up resources to fight the pandemic and its impact. Small States remain committed to enhancing debt transparency and using fiscal space prudently and call on international official creditors to extend the DSSI through 2023.
9. Small States are grateful to World Bank Group shareholders for providing the Group with the capacity to provide strong initial responses to this crisis, including by bringing forward resources from future years. We also acknowledge the response from the International Monetary Fund and other development partners. Looking ahead, our financing needs for recovering growth, building resilience and human capital, and investing in other public goods will far outstrip available resources.
10. We note the unprecedented nature of the pandemic, which has put global development resources under strain at a time when developed countries are themselves battling the crisis. We call on the international community, and IDA donors in particular, to recognize the uniquely vulnerable situation and the disproportionate impact of the pandemic on small economies and their peoples and to respond to this situation with clear timelines, including by strengthening the financial capacity of IDA by supplementing IDA19 resources.
