A multidimensional vulnerability index (MVI) could demonstrate the fragility of SIDS’ economies and environments and highlight their needs for concessional financing. Cristina Argudin Violante and Mairi Dupar report.

Small Island Developing States (SIDS) have complex social, environmental and economic challenges that constrain their sustainable development. The unique set of vulnerabilities that characterises these nations needs to be better measured. This would not only increase international understanding of SIDS’ challenges. It could also help SIDS to gain access to concessional finance for resilient development.

On 28 July 2021, Courtenay Rattray, UN High Representative, OHRLLS, and Dr Emily Wilkinson, Senior Research Fellow, ODI, convened a policy roundtable to discuss SIDS’ special case for climate finance and debt.  At the event, participants discussed the importance of adopting a multidimensional vulnerability index (MVI) that reflects SIDS’ challenges and needs.

The structural vulnerabilities of SIDS, including their size, geographic location, limited resource base, market size, reliance on imports and tourism, and exposure to natural disasters, make them particularly vulnerable to external shocks. In addition, SIDS are highly vulnerable to the impacts of climate change, which poses an existential threat to many of these states. Despite being responsible for only 1% of global greenhouse gas emissions, SIDS are facing increasing sea level rise, and more intense and severe extreme weather events.

Despite their large financial needs, most SIDS cannot access sufficient international financial support to adapt to climate change impacts and mitigate against climate change through low carbon development. Some SIDS are ineligible for Official Development Assistance (ODA) due to their classification as high-income countries, despite being much more vulnerable than their income level would suggest.

SIDS also face heavy debt burdens, which have been worsened by the COVID-19 pandemic and its economic shocks. This has impacted countries’ national budgets and exacerbated their financing needs, making even harder for them to achieve their potential for sustainable and resilient development.

SIDS continue to advocate against the use of Gross Domestic Product (GDP) as the sole criteria to access any form of international support. Baroness Patricia Scotland, speaking at the roundtable event, said: “GDP cannot be the sole measure” to determine SIDS’ access to financial assistance.

In 2020, the United Nations (UN) Secretary General committed the UN to advocating for SIDS on the issue of access to concessional finance and to undertaking work for the development of a MVI. The UN General Assembly mandated the UN to produce an MVI for SIDS and present options for its use and requested the UN Secretary-General to report on the matter one year later.

What would a MVI look like?

A  MVI would allow for the inclusion of broader criteria, beyond income, and could be used to assess countries’ eligibility for accessing concessionary finance.

A range of vulnerability indices have been developed during the last two decades covering different dimensions of vulnerability such as economic, social environmental and governance (Adrianto and Matsuda 2004, Atkins et al. 2000, Briguglio & Galea 2004, Briguglio et al. 2009, Briguglio 1995, Easter 1999, Guillaumont 2009, Kaly et al. 2005, Turvey 2007, UN Committee for Development Policy 2008). However, only a few measure vulnerability as a multidimensional phenomenon, or are focused on SIDS’ particular characteristics.

A new MVI would require a more holistic view that reflects SIDS’ current vulnerabilities. Two recent proposals for MVIs have considered new forms of measurement, which are more appropriate to SIDS. Assa and Meddieb (2021) proposed to build upon the eight indicators of the Economic and Environmental Vulnerability Index (EVI Indicators), created by the UN Committee for Development Policy. The authors propose the addition of three indicators that consider tourism revenues, remittances, and Foreign Direct Investment (FDI) to consolidate previous indicators, in response to the Covid-19 pandemic. In contrast, Sachs et al (2021) proposed a draft MVI made of 18 indicators reflecting the three broad dimensions of structural vulnerability: economic vulnerabilities, structural development limitations, and environmental vulnerabilities.

Furthermore, the Commonwealth Secretariat launched its Universal Vulnerability Index (UVI) in June 2021 (Commonwealth Secretariat, 2021). The UVI aims to provide a more robust yet flexible tool for measuring the vulnerability and resilience of a nation at any given time. Baroness Patricia Scotland described the UVI as able to “capture the dynamism, the changes in countries’ vulnerability over time”.

The Commonwealth Secretariat’s index separates out dimensions for structural resilience and structural vulnerability, allowing a ranking of a country’s ability to rebuild. It considers economic, climatic and socio-political challenges and resilience to measurements of infrastructure and policy performance. It also measures the different vulnerabilities within and outside a country’s control. The measurement then allows for a country’s reaching a stage where it no longer needs assistance.

One of the key benefits of a MVI, according to Emily Wilkinson et al, in a policy brief prepared for this event, is that it “offers great potential for developing additional (or exceptional) eligibility criteria for concessional finance that align with commitments under the Paris Agreement. The MVI could be used to improve resource allocation across all international financial institutions and help SIDS that graduate in the future to access concessional finance. This would support a transition to more sustained models of development in SIDS in combination with increased climate finance and debt reduction.”

A future for MVI?

SIDS leaders recognise that a MVI could be instrumental in unlocking the finance they urgently need. Gaston Browne, President of Antigua and Barbuda, explained that many SIDS “continue to be denied access to concessional financing due to the continual use of the GNI [Gross National Income] criterion for eligibility and allocation by multilateral development banks, the OECD and G20. Since evolving this programme of action (SAMOA Pathway) in 1994, SIDS have emphasised the need for vulnerability indices that accurately reflect their circumstances to include the various structural problems that they face and to enable fairer and more just allocation of development finance”.

Although there is potential for adoption of an MVI to unlock increased qualities and quantities of finance, its success will rely on different factors. First, the index must be dynamic in reflecting SIDS’ vulnerabilities. Second, the index will be as good as the data that feeds into it. For this, SIDS will need to systematically collect and deliver quality data in a structured way. Lastly, acceptance and consensus on the adoption of a MVI will be needed among SIDS and international donors.

Jeffrey Schlagenhauf, Deputy Secretary General at OECD highlighted: “In terms of Development Assistance Committee appetite for a MVI, I should emphasise that there is not currently a consensus to revisit GNI per capita as the sole criterion for ODA eligibility. However in my view, a MVI can co-exist with an ODA measure and could prove valuable in identifying the aspects of vulnerability that merit increased attention when developing donor programmes and ensuring that SIDS transition from ODA eligibility with a reduced dependency on ODA.” This suggests that alternative views can also emerge on how an MVI is used in the assessment of finance packages.

The present moment may provide a critical policy opportunity for SIDS to leverage their partnerships in international policy and investment arenas for adoption of a MVI and related finance system, internationally.

The current confluence of increased attention being paid to climate change adaptation at COP26 in Glasgow, moves for a post-Covid-19 ‘green’ recovery and debt restructuring, and donors’ shifting agendas, primarily in United States and the United Kingdom, may pave the way to do things differently and help SIDS’ resilience plans get back on track.

Image (top), courtesy Robert Pittman flickr.com