Four things you should know: Climate change & Small Island Developing States—by the numbers

Small Island Developing States (SIDS)—think Bahamas, Belize, Fiji—are some of the most exotic and environmentally striking places in the world. The group of 57 heterogenous states, including those across the Caribbean and Oceania - from Antigua to Vanuatu - are some of the world’s most biodiverse destinations.

SIDS rank amongst some of the world’s most vulnerable countries, highly exposed to external shocks, global warming-induced rising sea levels and other risks due to climate change. Unless substantial investments are made to mitigate climate change, boost adaptation, and build more resilient economies, they face urgent climate and financial risks.

SIDS rank amongst some of the world’s most vulnerable countries, highly exposed to external shocks, global warming-induced rising sea levels and other risks due to climate change.

Here are four things to know about SIDS, climate change, and development financing.

1. SIDS are among the world’s most exposed countries to climate change.

Out of the 192 countries ranked in the Notre Dame Global Adaptation Index sub-index of exposure to climate change, 10 of the 19 countries in the most exposed decile are SIDS. This exposure mainly stems from their geographical characteristics; many are in tropical cyclone zones and a large share of their land area is made of low-lying coastal land, exposing them to both storms and sea level rises. 

_{Ranking of 36 SIDS in the ND-GAIN sub-index of Exposure to Climate Change. Source: ND-GAIN}

2. SIDS are especially vulnerable to tropical cyclone disasters.

Tropical cyclones cause most of the damage from natural disasters in SIDS. The EM-DAT database records 185 episodes of tropical cyclone disasters within Caribbean SIDS and 74 within Oceania from 1995 to 2022. These disasters caused US$ 45 billion in damages in the Caribbean and US$ 2 billion in Oceania (in 2022 prices). In 20 occasions since 1995, tropical cyclones have caused damages estimated at more than 10% of GDP in the Caribbean and Oceania—and in eight of these cases, the estimated damages exceeded 50 percent of GDP. In terms of damages as a share of GDP, some of the smallest SIDS—such as St Kitts and Nevis, Grenada and Dominica have experienced the most extreme damages due to cyclones, because their GDP is relatively small. But in terms of the absolute value of estimated damages, SIDS with larger economies—including Cuba, the Bahamas and the Dominican Republic—have suffered the largest aggregate damages, in part because they have more economic assets exposed to damages from cyclones.

_{Largest cyclone disasters in Caribbean and Oceanian SIDS, 1995-2022: damages as a percent of GDP. Source: EM-DAT}

3. Estimated requirements for public investment in climate change adaptation are substantial—some countries require up to 20% of their GDP to build resilience against climate change.

Investing in adaptation for climate change falls into three main categories:

i. Upgrading new investment projects to make physical assets more resilient to climate change.

ii. Retrofitting existing physical assets to make them more resilient.

iii. Investing in coastal defences.

Estimates of average annual investment requirements—what countries need for climate adaptation—varies across SIDS. But for most, these requirements are substantial because of their high exposure to climate change and the difficulty of achieving economies of scale in small economies. The table below provides estimated requirements for annual public investments in adaptation across all categories in some SIDS over the next decade.

_{Estimates of Annual Public Investment Countries Require to Adapt to Climate Change, through 2030. Source: International Monetary Fund (2021) “Dominica: Disaster Resilience Strategy”, IMF Country Report No. 21/182, Washington DC | (2022B) “Grenada: Disaster Resilience Strategy”, IMF Country Report No. 22/80, Washington DC | (2021) “Fiscal Policies to Address Climate Change in Asia and the Pacific”, IMF Departmental Paper, No. 21/207, Washington DC}

4. For about a third of SIDS, the public debt to GDP ratio is very high, but concessional finance can boost adaptation to climate change

The burden of public debt varies across SIDS, but for over 30% of them, public debt is high. The nominal value of public and publicly guaranteed (PPG) debt to GDP ratio is above 60 %. For two SIDS (Antigua and Barbuda, and Suriname), the PPG debt is unsustainable. Another two SIDS are in debt distress, and 14 are judged to be at a high risk of debt distress. A high debt burden constrains the fiscal space that SIDS have for investments in climate change adaptation. 

_{Public and Publicly Guaranteed Debt to GDP of SIDS (percent): Nominal value of debt and, where available, Net Present Value. Source: Debt Sustainability Analysis (DSAs) for each country}

Overall, SIDS need significantly more financial and, in some cases, technical assistance to make vital investments in adaptation which can mitigate the risks that they face from climate related shocks. But it’s not all bad news. Some estimates indicate that for most SIDS, financing adaptation is feasible, especially with sufficient support from development partners, through grants and similar options. This means that the approach to planning and implementing climate change adaptation in small island countries needs to be efficient, systematic, and mainstreamed into each country’s broader national development strategies, so that it complements other development goals and minimises potential trade-offs.

Most importantly, there is an opportunity for development partners to maximize global impact by investing in the world’s most vulnerable places. Through effective use of concessional finance, the world could see long-term, large-scale benefits to investments in climate change adaptation. With the right assistance, small island developing states can become more livable,  and play a key role in unlocking the reality of shared global prosperity.

Read the Policy Research Working Paper: Climate Change Vulnerability, Adaptation and Public Debt Sustainability in Small Island Developing States