Development finance topics

Small Island Developing States - SIDS


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Small Island Developing States (SIDS) include some of the world’s smallest and most remote states in the world. Though they differ in population size, geographical spread and development progress, they share challenges and vulnerabilities: high exposure to natural disasters, climate change, and global economic shocks, as well as small or unstable domestic revenues and limited borrowing opportunities. These prevent them from investing in resilient development and seriously hinder their growth prospects.

The OECD provides statistical data and policy analysis on external finance to Small Island Developing States (SIDS) to enhance access to and quality of development co-operation, and to support the development of tailored financial instruments and approaches.

In view of the challenges facing SIDS, a Technical Advisory Group of SIDS, donors, and international organisations set up a virtual Secretariat (composed of OECD and UN) in 2021 to develop guidance on improving the effectiveness and impact of international co-operation in the specific context of SIDS.

Through its Sustainable Ocean for All initiative, the OECD also supports SIDS in harnessing the potential of their ocean economies to spur sustainable and resilient development. 

Financing for Small Island Developing States

SIDS are highly vulnerable developing countries that suffer from low economic diversification, often characterised by high dependence on tourism and remittances, volatility due to fluctuations in private income flows and the prices of raw materials, and debt stress situations. Furthermore, SIDS make up two thirds of the countries that suffer the highest relative losses – between 1% and 9% of their GDP each year – from natural disasters and are acutely vulnerable to the impacts of climate change.

Trends in ODA for SIDS

  • Official Development Finance (ODF) commitments to SIDS averaged USD 12.1 billion in 2021-22, showing a significant increase in recent years (2019-20 compared to 2021-22). Non-concessional flows (OOF) primarily drove this rise, while Official Development Assistance (ODA) shows a slower but steady increase over the observation period (2015-22).
  • Recent OECD research shows that ODF allocation for SIDS is less responsive to structural vulnerability criteria defined in the UN Multidimensional Vulnerability Index (MVI), notably climate-related disaster risk reduction (DRR) and lack of economic diversification.
  • SIDS face an annual adaptation gap of USD 7.3 billion on average per year until 2030. Currently, the international community provides an average of USD 1.4 billion per year to finance climate-related disaster risk reduction/adaptation. Leveraging ODA strategically could bridge this gap by tapping diverse financing sources.
  • In 2021-22, only 6% of all ODA to SIDS was allocated in support of the ocean economy (an annual average of USD 436.6 million). Encouragingly, a large share of this amount (91%) focused on promoting ocean health and bolstering the sustainability of ocean-based sectors (i.e., ODA for the sustainable ocean economy).

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When do SIDS ‘graduate’ from official development assistance?

Most SIDS that are ODA-eligible are currently upper middle income countries. ODA rules stipulate that when a country surpasses the high income threshold for three consecutive years (at the time of the triennial review), it can graduate from the list, i.e. flows to them from DAC members can no longer be counted as ODA.

Since the beginning of the DAC (1961), the following SIDS have graduated from the DAC recipients list: Guadeloupe, Martinique, Réunion and Saint Pierre and Miquelon (1992); Bahamas and Singapore (1996); Bermuda, Cayman Islands, Cyprus and Falkland Islands (Malvinas), (1997); Aruba, the British Virgin Islands, French Polynesia, Netherlands Antilles, New Caledonia and the Northern Marianas Islands (2000); Malta (2003); Turks and Caicos Islands (2008), Barbados, Mayotte and Trinidad and Tobago (2011); Anguilla and Saint Kitts and Nevis (2014); Seychelles (2018); Cook Islands (2020); and Antigua and Barbuda (2022).

SIDS which are preparing to graduate from the DAC list of ODA recipients can use the following three scenarios on the evolution of their GNI per capita until 2030.

> Scenario 1
SIDS GNI per capita between 2023-30 grows, per year, at a similar average rate as that observed between 2015 and 2019. Under such a scenario, those SIDS who would be able to graduate are: Guyana in 2025, Montserrat and Nauru in 2026, St. Lucia in 2028, Maldives in 2029, Mauritius and Palau in 2032, and Grenada in 2033.

> Scenario 2
SIDS GNI per capita between 2023-30 grows at +5% per year. Under such a scenario Guyana would graduate in 2025, Montserrat and Nauru in 2026, Palau in 2027, St. Lucia in 2028, Cuba in 2030, and Mauritius in 2031.

> Scenario 3
SIDS GNI per capita between 2023-30 grows, per year, at double the rate observed in 2015-19. Under this scenario, the SIDS that would be able to graduate are: Guyana in 2025, Montserrat and Nauru in 2026, St. Lucia and Maldives in 2027, Cuba and Palau in 2028, Grenada and Mauritius in 2029, Dominican Republic, Marshall Islands and St. Vincent and the Grenadines in 2030, Dominica in 2032.

Note: the above scenarios are hypothetical projections and do not reflect an OECD position.

More resources:

Further reading

Helping Small Island Developing States (SIDS) overcome development financing challenges

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