Towards a Multidimensional Vulnerability Index




Towards a Multidimensional Vulnerability Index

February 2, 2021

Small Island Developing States (SIDS) face severe structural challenges due to their remoteness, economic concentration, and dependence on external flows such as remittances, foreign direct investment and tourism revenues. The COVID-19 pandemic has greatly exacerbated these vulnerabilities by restricting travel, collapsing investment and tourism, and weakening the economies from which remittances are sent. However, most SIDS are still not eligible for concessional financing due to their classification as middle or high-income countries.

This paper constructs a multidimensional vulnerability index (MVI) to account for both long-term structural vulnerabilities as well as the recent weaknesses uncovered by the pandemic. Using 11 indicators for 128 countries (including 34 SIDS), the MVI demonstrates that all but five SIDS are far more vulnerable than their income level would suggest. Using the MVI, non-LDC SIDS could save close to 1.5% of their GDP per annum in interest payments. It contributes to the debate on vulnerability measurement by contrasting a narrow focus on economic or environmental vulnerability with a multi-dimensional approach to assessing countries’ structural vulnerabilities to a variety of shocks. This analysis implies the urgent need to reconsider eligibility for concessional financing to SIDS on vulnerability rather than just income criteria.