Helen Clark: Speech at High-level Panel Discussion on Financing for Sustainable Development UN Conference of Small Island Developing Countries

Sep 2, 2014


I am pleased to have this opportunity to focus on a topic of critical importance: financing sustainable development in Small Island Developing States.

Whether among leaders here in Apia, diplomats at the UN, or in meetings with neighbors, villagers, and townspeople, many will have noticed a gap between the expectations of people and the size of government budgets. Severe natural disasters, economic volatility, high levels of debt, and slow growth are constraining the ability of many SIDS to invest as much as they would like to in human development.

Climate change will continue to have a disproportionate impact on SIDS. The adaptation needs of SIDS are estimated to be among the highest in the world . Yet, in 2012 SIDS’ economies grew at an average rate of only just over two per cent - too low to cater to the wide range of investment needs which SIDS have.

UNDP and OCED have organized this event to explore how the financing needs of SIDS can be met, and to identify how to improve access to and management of environmental and climate finance; tackle debt issues; and make use of new financing instruments.

To begin our discussion, UNDP makes the following proposals:

The first is about the debt sustainability challenges faced by a number of SIDS, which in many cases are severe. In the Caribbean in 2014, average public debt levels amounted to eighty per cent of GDP - compared with 34 per cent for developing countries as a whole. Countries in the Atlantic and Indian Oceans and the South China Sea also have higher than average debt levels.

Debt problems have forced many SIDS to restructure their finances. Research conducted by UNDP found no fewer than 56 debt restructuring operations in seventeen SIDS over the last forty years .  Such data suggests that the debt challenge is systemic. It is becoming increasingly clear to many that in order to solve it, international attention is needed.

Despite very high debt levels, all but five SIDS have been considered ‘too wealthy’ to benefit from international debt relief. The countries that did benefit, in particular from the Heavily Indebted Poor Countries (HIPC) Initiative, have proven that comprehensive debt relief works. Where all creditors – bilateral, multilateral, and private – are a part of the effort, debt relief has helped countries grow their economies and boost spending on poverty reduction.

An equivalent ‘Heavily Indebted SIDS Initiative’ could be considered as part of a global effort to advance debt sustainability for human development. UNDP would be happy to contribute to the design of such an initiative. A second practical way forward would be to consider reforming the eligibility criteria for concessional finance.

With few exceptions, SIDS are classified as middle-income countries. That means most cannot access the concessional financing offered by multilateral lenders and must instead borrow at market rates. Recently many in the international community have been questioning whether it is appropriate for countries which are disproportionately exposed to extreme weather and climate change to have to borrow on commercial terms.

The World Bank and Commonwealth Secretariat are looking at the potential for reform of the eligibility criteria for concessional finance so that it can be extended to more SIDS. To achieve that, the eligibility criteria would need to take into account indicators beyond income per capita. Over the long term, SIDS’ progress towards sustainable development will depend, in large part, on their capacity to mobilize resources and use them effectively, including to reduce disaster risk and adapt to climate change.
The criteria should consider an evaluation of countries’ capacity to mobilise domestic and external resources, their environmental vulnerability, and their level of human development. Indices such as UNEP’s Environmental Vulnerability Index and UNDP’s Human Development Index would be a useful starting point. UNDP would be happy to explore these and other ideas further with our partners.
Third, innovative financial instruments could also be made more widely available to SIDS.
The French Development Agency’s ‘countercyclical loan’ is a good example of such an instrument which other partners might like to consider. This loan has been piloted in several low-income African countries. At the outset of the loan it was agreed that if a severe shock– such as a natural disaster or price shock occurred within five years, debt servicing would be allowed to fall – or even become zero.  In effect, under such loans debt service can be temporarily suspended, in order to release extra funds for relief and reconstruction. If applied widely to SIDS, they would then need to take on less new debt with each new disaster.
Debt-for-climate change swaps are another innovative instrument whose use could be scaled up. The experience of Antigua and Barbuda, Belize, and Jamaica with these suggests their potential to reduce debt and support conservation. UNDP stands ready to work with our South-South Co-operation and OECD DAC partners to explore how such innovations can be made more widely available to SIDS.  
A final and essential proposal is to scale up efforts to strengthen the capacity and readiness of SIDS to access and use climate finance.
SIDS face significant capacity constraints in identifying which of the multitude of existing funds are the most appropriate. Managing and spending those resources effectively can also be a challenge.
UNDP has learned the importance of support which goes well beyond project development. Through instruments such as the Pacific Climate Finance Assessment Framework developed by the Pacific Island Forum Secretariat, UNDP supports countries to establish the capacity to design and implement climate change initiatives. In Guyana, for example, UNDP is helping the Government to develop REDD+ projects, as well as establish the fiduciary, environmental, and social safeguards which ensure that resources are used effectively.  In Fiji, UNDP is piloting a Green Climate Finance readiness programme boosting local capacities to access and use Green Climate Funds. We are also exploring the potential of SIDS-SIDS co-operation aimed at boosting climate and disaster resilience.
UNDP has a long track record of helping SIDS leverage climate finance. The demand and need for such impartial capacity support is vast. Unfortunately, the public funds needed to meet demand are dwindling. In 2013 less than four per cent of total ODA was allocated to SIDS – a number that’s been declining since the 1990s.
Agreement on the post-2015 global development agenda opens a window of opportunity to scale up support in the ways I’ve mentioned, and no doubt in others. An integrated global agenda with sustainable development at its core can help us move once and for all away from silos, and enable us to consider how public and private, and domestic and international finance can work together in a complementary fashion.
SIDS’ governments will need to mobilize additional resources for sustainable development, use them effectively and transparently, and improve debt management. The international community must deliver on its aid and climate finance commitments.
UNDP looks forward to working to establish new partnerships which will ensure that SIDS can fund their sustainable development aspirations.

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