Building The Resilience Of Small States

Some small states enjoy relatively high GDP per capita –giving the impression of economic strength – when in reality these economies are fragile and disproportionately affected by adverse economic shocks, natural disasters and extreme weather events. The Commonwealth resilience framework has been developed to identify both the national policies required to build resilience and the areas in which regional and international development partners can provide support. This study refines and expands the framework to cover areas such as governance, environmental management and social development. It proposes policy measures for building resilience and ways in which the resilience framework for small states can be embedded in national planning to help stakeholders to agree priority areas for policy intervention.

This book provides a tool for assessing both how prone a country is to external economic shocks - its vulnerability - as well as its ability bounce back from those shocks - its resilience. For economic planners, as well as students of the economies of small states.

Small developing states tend to be inherently prone to exogenous shocks over which they can exercise very little control. In the main, such proneness emanates from the small states; structural trade openness and their very high dependence on a narrow range of exports. There are a number of small developing states that, in spite of their inherent economic vulnerability, manage to generate a relatively high GDP per capita when compared with other developing countries. This can be ascribed to economic resilience building associated with policy-induced measures that enable a country to recover from or adjust to the negative impacts of adverse exogenous shocks and to benefit from positive shocks. The main argument put forward in this book is that economic resilience can be built through appropriate policy interventions in four principal areas, namely macroeconomic stability, microeconomic market efficiency, good governance and social development. Published by the Islands and Small States Institute, Malta and the Commonwealth Secretariat.

Small developing states are disproportionately vulnerable to natural disasters. On average, the annual cost of disasters for small states is nearly 2 percent of GDP—more than four times that for larger countries. This reflects a higher frequency of disasters, adjusted for land area, as well as greater vulnerability to severe disasters. About 9 percent of disasters in small states involve damage of more than 30 percent of GDP, compared to less than 1 percent for larger states. Greater exposure to disasters has important macroeconomic effects on small states, resulting in lower investment, lower GDP per capita, higher poverty, and a more volatile revenue base.

We present a dynamic small open economy model to explore the macroeconomic impact of natural disasters. In addition to permanent damages to public and private capital, the disaster causes temporary losses of productivity, inefficiencies during the reconstruction process, and damages to the sovereign's creditworthiness. We use the model to study the debt sustainability concerns that arise from the need to rebuild public infrastructure over the medium term and analyze the feasibility of ex ante policies, such as building adaptation infrastructure and fiscal buffers, and contrast these policies with the post-disaster support provided by donors. Investing in resilient infrastructure may prove useful, in particular if it is viewed as complementary to standard infrastructure, because it raises the marginal product of private capital, crowding in private investment, while helping withstand the impact of the natural disaster. In an application to Vanuatu, we find that donors should provide an additional 50% of pre-cyclone GDP in grants to be spent over the following 15 years to ensure public debt remains sustainable following Cyclone Pam. Helping the government build resilience on the other hand, reduces the risk of debt distress and at lower cost for donors.

The Caribbean faces numerous economic, social and environmental challenges, with current projections predicting the road ahead to be filled with low levels of growth, high debt and low resilience. In Achieving a Resilient Future for Small States: Caribbean 2050, the contributors set out a long-term, research-based strategy for avoiding these projections, recommending a number of policy interventions aimed at building the region’s resilience and development prospects. Written by influential analysts and researchers and drawing on a wide cross-section of regional stakeholders and thought leaders, the study contains an assessment of the main challenges and opportunities for the region, scenario modelling of where the region could be by 2050, and a broad vision for the region with sector specific goals of how to get there.

Strengthening Disaster Resilience in Small States: Commonwealth Perspectives offers timely and expert analysis of differentiated exposure of small states to natural disasters, including an examination of specific interventions for strengthening small states’ resilience to this phenomenon