Caribbean insists new classification for concessional funding necessary
The Caribbean is insisting on the development of new ways to classify economies for the allocation of development financing, especially as the Region faces multiple challenges, including the coronavirus pandemic.
As broader access to concessional funding is necessary, the Region says there should be an index that would measure the vulnerabilities and risks developing countries face, instead of the per capita income guide that international financial institutions currently use to determine allocation of funds. Development assistance agencies have ‘graduated’ many Caribbean countries to middle income status driven by the use of the per capita income measurement which cuts and eventually halts the level of funding those countries can access.
Over the past year, the Caribbean ramped up its objection to the per capita income measurement, with Heads of Government and the Secretary-General among those advocating for the use of a vulnerability index.
Top Caribbean officials continued making the case for the use of a vulnerability and resilience index on 12 January during a conversation the UN Economic Commission on Latin America and the Caribbean (UNECLAC) hosted on the sidelines of the 12th Ministerial Forum for Development in Latin America and the Caribbean. The theme of the event was ‘Towards a new classification for Caribbean economies’. Ravi Kanbur, Professor of World Affairs and Applied Economics, Cornell University, set the stage for the hour-long discussion which Riad Meddeb, Senior Principal Advisor for Small Island Developing States, UNDP moderated.
Panelists agreed that the per capita income measurement failed to effectively assess the development needs of the Caribbean. They recommended that financial institutions consider the physical location and size of countries in the Region; their exposure to economic and environmental shocks, in particular; identify where the vulnerabilities were and use those measurements to determine how financial resources should be allocated.
New system of classification needed
Senator Kamina Johnson Smith, Jamaica’s Minister of Foreign Affairs and Foreign Trade, who was on the panel, called for expeditious movement to forge fresh global consensus on classification of middle income countries including Small Island Developing States (SIDS) of the Caribbean.
A new system of classification, she said, would have a positive impact on efforts to rebuild Caribbean economies.
Focusing on the impact the pandemic was having on regional economies, Minister Johnson Smith highlighted a reduction in foreign trade and the “near cessation” of tourism and airline movements in 2020 that resulted in almost 100 per cent contraction of the hospitality sector on which the Region is heavily dependent. Debt to GDP ratios for the majority of Caribbean countries had also risen above the 60 per cent threshold for sustainability. In the case of three countries, the debt had risen to in excess of their GDP.
Though the prognosis was better now, she warned of systemic deficiencies that existed and which the pandemic exacerbated. Among the challenges she spoke of were severe weather events that caused infrastructure damage in the Region.
“There is need for reclassification of economies to gain access to funding that is so intrinsic to recovery,” she said, pointing out that the time had come for the idea of the vulnerability index in development financing.
In the absence of debt relief initiatives, and limited interest by developed countries to provide additional financing through facilities such as special drawing rights allocations, or World Bank capital increases, middle income countries such as those so classified in the Caribbean faced a “very great and grave possibility of a systemic debt crisis with many corporate and sovereign defaults in the 2021-2022 financial period and perhaps in the medium term”, the Minister warned.
Region’s vulnerability multi-layered
Mr. Joseph Cox, CARICOM Assistant Secretary-General told listeners that the per capita measurement stymied growth and development of the Region, and that graduation led to a debilitating debt burden. In his presentation, he identified the factors that placed the Region in a vulnerable position, including the devastating impact of climate change; the fact that 40-60 per cent of economies were informal; weak private sector absorption; and very high exogenous shock risk.
“We have to recognise, that, for example, in the case of Dominica, in a couple of hours of the passage of a hurricane, they lost over 200 per cent of GDP. Montserrat has been very severely impacted by volcanic activity… and right now, as we speak, even though we hope and pray that it doesn’t come to fruition, St. Vincent and the Grenadines also has its own challenges with volcanic activity…
“As we look at this issue, one of the things we have to keep in mind is that the vulnerability of the Region is not just in terms of its macro-economic fundamentals, but there are also social, and what we would call climate change vulnerabilities that we have to take into consideration,” Mr. Cox told the forum.
With the exception of Haiti, all CARICOM Member States were classified as middle or high-income states, he pointed out, which he said was indicative of their economic and social progress, and which occasioned their graduation from access to concessional multilateral financing and official development assistance (ODA) that was necessary for resilience-building and financing of sustainable development.
Zeroing in on what will occur post-COVID-19 given the peculiar vulnerabilities the pandemic exposed, the Assistant Secretary-General predicted that the Region was likely to suffer from an increase in sovereign risk ratings which would place additional constraints on their ability to effectively access finance.
He concurred with the other panelists that there was need for appropriate eligibility criteria for broader access to concessional multilateral funding and ODA which take into account the Region’s inherent vulnerabilities and its need to secure funding for resilience building.
This is not a call for special treatment says UWI VC @HilaryBeckles regarding the growing call for reclassification of Caribbean economies. “We believe in fairness, justice and in doing what is right”. Speaking at #ForoMinisterial2020 @UWIGPSF @mfaftja @MOFJamaica @CCCEur pic.twitter.com/De7FxyGMCe
— UNDP Multi Country Office in Jamaica (@UNDPJamaica) January 12, 2021
Other panelists at the forum were Luis F. Lopez Calva, UNDP Regional Director; His Excellency Aubrey Webson, Ambassador of Antigua and Barbuda and Chair of the Alliance of Small Island States; and Sir Hilary Beckles, Vice Chancellor of The University of the West Indies and Daniel Titelman, Chief of Economic Development Division of ECLAC.
Mr. Webson focused heavily in the impact of climate change on the Region’s ability to develop and queried whether the Region had the capacity to withstand the shocks and the ability to build resilience given the frequency with which natural disasters hit the Caribbean.
“Now is the time for action. We have been speaking a lot, and in a strange way, out of adversity can come opportunity, and out of the pandemic should, we hope, come the opportunity that the world will finally listen to small island states. We were the ones who led the world in the 1990s into taking climate change much more seriously than at any other time… We also want them to take our plea for a vulnerability index to measure our survival, otherwise we are going to find ourselves in greater trouble; we will never accomplish the 2030 Agenda if the vulnerability index is not deployed now as a measurement and we get rid of the single economic measurement that is used,” he warned.