current
Small States Fiscal Distress
Small states face chronic fiscal difficulties, exacerbated by climate change and debt distress, requiring comprehensive reforms and international support.
Timeframe
immediate
Subcategories
Impact areas
Detailed Analysis
The report highlights the acute fiscal challenges faced by small states, particularly EMDEs with populations around 1.5 million or less. These economies, while home to a relatively small global population, are disproportionately vulnerable to climate change and face chronic fiscal difficulties. The report reveals that two-fifths of these small states are at high risk of debt distress or already in it, a significantly higher proportion than other EMDEs. Their vulnerability stems from frequent climate-related natural disasters, occurring at a frequency eight times the average of other developing economies. The report advocates for comprehensive reforms to address these challenges. These include improving domestic revenue mobilization, enhancing spending efficiency, particularly in health, education, and infrastructure, and establishing robust fiscal frameworks capable of managing frequent shocks. The report stresses the importance of coordinated global policies and financial support to help small states stay on a sustainable fiscal path.
Context Signals
40% of EMDE small states are at high risk of or already in debt distress.
Small states experience natural disasters eight times more frequently than other developing economies.
Small states face chronic fiscal difficulties and limited access to finance.
Edge
Innovative financing mechanisms, such as debt-for-climate swaps, could help small states address climate change while managing debt burdens.
Regional cooperation and risk-sharing mechanisms can enhance the resilience of small states to external shocks.
Technology and digital solutions can improve public financial management and service delivery in small states, enhancing efficiency and transparency.
