Tackling the 'cost of capital' crisis in small vulnerable nations

The study notes that despite differences between individual SIDS and across regions, SIDS as a group face some of the highest debt burdens of all groups of developing countries. This is in part due to difficulties in accessing concessional finance. Overall, SIDS are highly dependent on official development assistance (ODA), but several are no longer eligible, and the number of these ineligible states is growing. This policy brief draws on earlier work by the Resilient and Sustainable Islands Initiative (RESI) on debt sustainability in Small Island Developing States (SIDS) (Hurley et al., 2024). 

Research conducted by the Resilient and Sustainable Island Initiative (RESI) finds that if ten SIDS issuing USD-denominated bonds from 2003–2023 had paid G7 rates, they would have saved $34 billion – equivalent to 78% of development assistance. This policy brief outlines how reducing the cost of capital in SIDS can free up finance for climate resilience and ultimately reduce aid dependence. Measures needed to achieve this include a SIDS credit guarantee mechanism and strengthened debt negotiation capacity.