SUMMARY CLIMATE AND DISASTER RESILIENCE FINANCING in Small Island Developing States 2 INTRODUCTION Natural disasters and climate change severely affect the growth trajectory of SIDS and their ability to achieve sustainable development. SIDS are located in some of the most disaster-prone regions in the world and comprise two-thirds of countries with the highest relative annual losses due to disasters. With the effects of climate change compounding the intensity of these disasters, this trend is set to continue, creating new developmental challenges for SIDS. Natural disasters and climate variability severely impact major economic sectors in SIDS, hinder economic growth and affect the most vulnerable populations. Lacking relatively stable and strong fiscal revenues and domestic savings, SIDS governments often need to divert scarce public resources from essential social and economic development investments to address disaster-related needs, compromising the pace and scope of future growth. Development in SIDS, therefore, is subject to a range of interconnected and mutually reinforcing economic, social and environmental challenges. 2/3 SIDS ACCOUNT FOR TWO-THIRDS OF THE COUNTRIES IN THE WORLD THAT SUFFER THE HIGHEST RELATIVE LOSSES DUE TO NATURAL DISASTERS ON AN ANNUAL BASIS - BETWEEN 1 TO 9 PERCENT OF THEIR GDP EACH YEAR. Building resilience at individual, institutional and private- sector levels is essential to achieve sustainable development in SIDS, but available financing for this purpose is limited and difficult to access. The responsibility, expertise and funding for climate and disaster resilient development is scattered across a large number of actors, creating a complex global architecture of funds and providers. While several market-based financing mechanisms have become available globally, they are not equally and easily accessible to all SIDS, and concessional finance from the international community remains a key source of financing to foster climate and disaster resilient development. Understanding how much SIDS are actually receiving and in what ways becomes, therefore, pivotal to help the international community more effectively support SIDS in building climate and disaster resilience. Cover photo by Tom Perry | World Bank 3 KEY TRENDS IN CONCESSIONAL FINANCE 1 6.8 billion CONCESSIONAL FINANCE DIRECTED TO SIDS IS SHRINKING IN AGGREGATE 5.3 billion TERMS: between 2012-14, annual average funding was USD 5.3 billion, 22% below the annual average of 2009-11. A small fraction of this finance supports climate and disaster resilience, averaging 14% a year (equal to USD 2009-11 Average Annual 2012-14 Average Annual 783 million). 2 ODA to SIDS ODA to SIDS BILATERAL PROVIDERS GAVE THE BULK OF RESILIENCE FUNDING TO SIDS (71%), CONTRIBUTING AN AVERAGE OF USD 556 MILLION A 29% BilateralBilateral Direct Flows Flows YEAR - COMPARED TO THE USD 227 PER YEAR FROM MULTILATERAL ORGANIZATIONS. While multilateral Bilateral Channeled Bilateral Channeled to to multilateral multilateral 56% institutions contributed 29% of total funds, they channeled close to 44% (USD 15% Direct Multilateral Multilateral 345 million) of the annual resilience funding in SIDS. 3 RESILIENCE FINANCING WAS MOSTLY 1200 PROVIDED IN THE FORM OF GRANTS, 1000 BUT CONCESSIONAL LOANS, MAINLY TARGETED TO SELECTED UPPER 800 41% USD MILLIONS 23% MIDDLE INCOME COUNTRIES (UMICs), 600 11% 26% INCREASED SUBSTANTIALLY. This 400 increase is in part due to increased concessional loans by MDBs. Overall, 200 concessional loans reached USD 415 0 million in 2014 (41%), up from USD 69 2011 2012 2013 2014 million in 2011 (11%). 4 Concessional Grants Concessional Loans WHILE UMIC SIDS WERE ABLE TO 100% 4% 11% 11% ACCESS MORE CONCESSIONAL 90% 12% 24% 80% LOANS - BRINGING THEIR SHARE 70% 37% 34% 33% OF CONCESSIONAL FINANCING TO 60% 21% 51% IN 2014 (up from 33% in 2011) - 50% 40% 18% 20% funding for Least Developed Countries 30% 42% 51% (LDCs) remained fairly constant, bringing 20% 33% 35% 10% 15% the share of concessional financing to 0% LDCs to 24% of the total in 2014, down 2011 2012 2013 2014 UMICs LMICs LDCs Regional, unallocated from 37% in 2011. 5 USE OF SECTOR-WIDE APPROACHES AND BUDGETARY SUPPORT REMAIN LIMITED, AS IS RELIANCE ON SIDS GOVERNMENTS TO EXECUTE FUNDS. About 8% of concessional finance for climate and disaster resilient development (USD 239 million) was provided as sectoral budget support and was provided only to 11 out of 35 SIDS. FOR CLIMATE AND DISASTER RESILIENCE1 6 THE RELATIVE WEIGHT OF Africa & Indian Ocean Japan France US Remaining Donors VARIOUS DONORS VARIES ACROSS GEOGRAPHIC REGIONS. World This trend of a small number Paci c Australia EU Bank Remaining Donors of donors in a given region is concerning, as SIDS could become World overly reliant on the shifting priorities Caribbean France Bank EU Remaining Donors of the dominant donor(s). 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 7 100% 90% MOST SIDS DEPEND PRIMARILY 80% 70% ON A SINGLE PROVIDER FOR 60% THE BULK OF THEIR RESILIENCE 50% FINANCING, EXACERBATING 40% 30% FINANCIAL VULNERABILITY. 20% For 14 of the 35 SIDS considered 10% in this report the top provider 0% accounted for over half of the resilience financing during 2011-14, with this percentage increasing over time. Top Donor Remaining Donors 8 Value Average # of projects / per year Volume (millions / per year) Proportion (%) Above $30 million 3 US$ 211 27 THE REMAINING RESILIENCE FINANCING IS FRAGMENTED $10 million to 13 US$ 223 28 ACROSS A LARGE NUMBER OF $30 million 35 PROJECTS THAT ARE DIFFICULT $1.5 million to $10 million 62 US$ 270 TO MANAGE GIVEN THE LARGE Below $1.5 million 351 US$ 80 10 351 CAPACITY CONSTRAINTS OF SIDS. About 82 percent of the projects supporting resilience in SIDS were below USD 1.5 million each, and comprised approximately 10 percent of the annual funding.2 Total: 428 Total: US$ 783 9 ON AVERAGE, UMICs RECEIVED MORE CLIMATE AND DISASTER Income classi cation Average per country RESILIENCE FINANCING PER CAPITA THAN LDCs AND Least Developed Countries US$ 197 US$ 165 LMICs, largely due to access to concessional loans. LDCs in Africa Lower Middle Income US$ 87 received particularly low funding, on average USD 8 per capita annually, Upper Middle Income compared to USD 197 on average US$ 322 for all LDC SIDS. 10 THERE ARE SUBSTANTIAL DIFFERENCES IN ACCESS TO CLIMATE AND DISASTER RESILIENCE FINANCE ACROSS INDIVIDUAL SIDS WHEN MEASURED ON A PER CAPITA BASIS. The smallest nations tend to receive the highest per capita annual financing allocations, largely because of the high fixed administrative costs. ANNUAL FUNDING FOR CLIMATE AND DISASTER RESILIENCE TO 23 SIDS, PER CAPITA3 Antigua & Barbuda US$ 16 Dominican Republic US$ 6 Haiti US$ 7 Jamaica US$ 10 Cuba US$ 1 Belize US$ 18 Grenada US$ 64 Suriname US$ 5 Cape Verde US$ 132 Guinea-Bissau US$ 2 US$ 52 Sao Tome & Principe US$ 15 Region Average per country Africa & Indian Ocean US$ 40 Caribbean Islands US$ 58 US$ 52 Paci c Islands US$ 529 PNG US$ 6 Palau US$ 107 Nauru US$ 134 Vanuatu US$ 141 Marshall Islands US$ 53 Kiribati US$ 187 Samoa US$ 207 Tonga US$ 239 Fiji US$ 12 Maldives US$ 26 Seychelles US$ 78 Comoros US$ 8 Mauritius US$ 22 EMERGING THE INTERNATIONAL COMMUNITY COULD DO MORE TO HELP SIDS Supporting SIDS to create an enabling policy environment for climate and disaster resilience. This includes public policies and regulations, which can promote climate resilience by influencing the choices of private actors in various sectors. Enhancing information on resilience and information management systems. This can be done through multi-country and regional partnerships and the innovative use of technology, which could prove cost-effective and increase impact. Supporting SIDS to integrate climate and disaster risk into national planning and budgeting. This will require supporting collaboration across a large set of ministries and departments to identify and integrate priorities, and highlight linkages and synergies across sector-level policy objectives. It may also require the adoption of contingency funds or financing buffers to allow for better preparedness and immediate response following disasters. Supporting public administration systems and institutions responsible for managing natural disasters, climate finance and risk. This includes supporting SIDS to further develop their public financial management systems and capacities to access and manage concessional funds – for example, by reinforcing central units as a one-stop shop for all incoming funding proposals – thus enabling investments to be prioritized and channelled more efficiently. Increasing the use of financing mechanisms that enhance capacity and coordination. Donors should consider further ways to pool resources to reduce SIDS reliance on a single source of concessional funds, while avoiding the high level of project fragmentation currently experienced. Providing predictable and more programmatic funding. Funding that is more programmatic and long term (typically 10-15 years) could also help build resilience for the smaller and more frequent disasters that can lead to larger cumulative damage over time. RECOMMENDATIONS ENHANCE CLIMATE AND DISASTER RESILIENT DEVELOPMENT BY: Providing predictable and more programmatic funding. Investing in pre-emptive measures to build resilience requires access to more reliable financing. Funding that is more programmatic and long term (typically 10-15 years) could also help foster the policy, institutional and behavioural change needed to help build resilience to climate and disaster impacts. Facilitating access to funding from global climate funds through simplified application and management procedures for SIDS. Development partners should use their influence to support adoption, by the global climate funds, of proportionate and streamlined approaches to encourage greater direct access and project implementation and greater national ownership. Using financing instruments that can help SIDS at risk of debt distress improve their debt situation and avoid using financing mechanisms that can undermine debt sustainability. In recent years, a number of instruments to deal with the debt situation of SIDS have emerged, which could be further scaled up and replicated. While some can provide temporary relief, the international community should also help SIDS address the drivers of debt accumulation. Furthermore, while greater concessional lending to Upper Middle-Income SIDS in recent years has increased the financing available for resilience, care should be taken to avoid endangering their debt sustainability. Facilitating an international dialogue on the eligibility criteria for concessional finance with the aim of ensuring that SIDS are able to access the finance they need at terms and conditions most suited to their specific circumstances. Currently, SIDS face a complex web of eligibility requirements that must be met in order to access different sources of concessional financing for resilience. With eligibility to several multilateral and bilateral funding sources relying heavily on per capita classification, SIDS have called for a coordinated effort by development partners to review the rules governing access to concessional finance. Investing to build national capacities and expertise. The sustainability and ownership of resilience programmes depends on striking the right balance between temporary solutions to fill human resource gaps and longer-term investments in national capacities across the full spectrum of institutional needs. Innovative approaches and the use of new technologies could help tailor capacity-building approaches to the specific context of SIDS. NOTES 1. Figures over 2011-14, in constant 2013 prices, unless otherwise specified. 2. The proliferation of small projects is widespread across all SIDS, with many countries managing an average of 10 individual projects a year providing less than USD 1.5 million each. 3. Annual Funding for Climate and Disaster Resilience to SIDS, Per Capita Total Resilience Annual Average Annual Per Financing, 2011- Financing for Population Capita Country Income Classification 2014 (US$ Resilience (US$ (millions) Resilience millions) millions) Financing Antigua and Barbuda Upper Middle Income Country $6 $1 0.09 $16 Belize Upper Middle Income Country $24 $6 0.33 $18 Cabo Verde Lower Middle Income Country $264 $66 0.50 $132 Comoros Least Developed Country $23 $6 0.73 $8 Cook Islands Upper Middle Income Country $27 $7 0.01 $497 Cuba Upper Middle Income Country $52 $13 11.27 $1 Dominica Upper Middle Income Country $68 $17 0.07 $238 Dominican Republic Upper Middle Income Country $250 $63 10.40 $6 Fiji Upper Middle Income Country $41 $10 0.88 $12 Grenada Upper Middle Income Country $27 $7 0.11 $64 Guinea-Bissau Least Developed Country $14 $3 1.70 $2 Guyana Lower Middle Income Country $189 $47 0.80 $59 Haiti Least Developed Country $282 $71 10.32 $7 Jamaica Upper Middle Income Country $103 $26 2.72 $9 Kiribati Least Developed Country $77 $19 0.10 $187 Maldives Upper Middle Income Country $36 $9 0.35 $26 Marshall Islands Upper Middle Income Country $11 $3 0.05 $53 Mauritius Upper Middle Income Country $115 $29 1.30 $22 Micronesia Lower Middle Income Country $13 $3 0.10 $30 Montserrat Upper Middle Income Country $1 $0 0.01 $58 Nauru Upper Middle Income Country $5 $1 0.01 $134 Niue Upper Middle Income Country $23 $6 0.00 $4,910 Palau Upper Middle Income Country $9 $2 0.02 $107 Papua New Guinea Lower Middle Income Country $172 $43 7.32 $6 Saint Lucia Upper Middle Income Country $83 $21 0.18 $114 Saint Vincent and the Grenadines Upper Middle Income Country $67 $17 0.11 $152 Samoa Lower Middle Income Country $158 $39 0.19 $207 São Tomé and Principe Least Developed Country $11 $3 0.19 $15 Seychelles Upper Middle Income Country $28 $7 0.09 $78 Solomon Islands Least Developed Country $153 $38 0.56 $68 Suriname Upper Middle Income Country $11 $3 0.54 $5 Timor-Leste Least Developed Country $220 $55 1.18 $47 Tonga Upper Middle Income Country $101 $25 0.11 $239 Tuvalu Least Developed Country $51 $13 0.01 $1,299 Vanuatu Least Developed Country $143 $36 0.25 $141 Oceania, regional Regional $274 $69 - - Total $3,132 $783 - - The opinions expressed and arguments employed herein do not necessarily reflect the official views of OECD member countries or of the World Bank, its Board of Executive Directors or the governments they represent. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite the work as follows: OECD, World Bank (2016). Summary Report: Climate and Disaster Resilience Financing in Small Island Developing States. This report was a collaborative effort between the Organization for Economic Co-operation and Development (OECD) and the Small Island States Resilience Initiative (SISRI) team in the Climate Change Group of the World Bank. The report was written by Piera Tortora (lead author) and Rebecca Soares. Inputs were provided by Rachel Morris, Cushla Thompson, Gisela Campillo and Mitch Levine. Statistical support for the report was provided by Cecilia Piemonte. The report was developed under the overall guidance of Sofia Bettencourt, Habiba Gitay and Suzanne Steensen. The report is a jointly funded initiative of the OECD and the partners of the Global Facility for Disaster Reduction and Recovery (GFDRR) at the World Bank. The report design was by Jon Mikel Walton. Editing was by Leila Mead.