Strategy Photo by Tom Perry, World Bank
The World Bank Group has a longstanding and growing commitment to supporting Small States’ development efforts. Small States are a priority for the entire Bank Group, including the International Development Association (IDA), the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA).
IDA Financing of SSF Countries
IDA has been the lynchpin of Bank support to Small States. In recognition of their vulnerability due to small size and often geographical isolation, IDA has extended special treatment to Small States through (i) exceptional access to concessional resources, (ii) increasing financing volumes, and (iii) the highest concessionality.
Small Island Exception
In 1985, the World Bank’s Board approved the Small Island (SIE) Economies Exception in recognition of small islands’ special characteristics (of size, remoteness, etc.) resulting in similar challenges to those faced by low-income countries. At the time, six Small Island Economies (SIEs) that were due to graduate from IDA were granted the Exception and remained IDA-eligible.*
Currently, 16 Small Island Economies with GNI per capita above the IDA operational cut off receive special treatment from IDA under the exception, including 10 SIEs with IDA-only status and six Blend SIEs.**
In March 2019, the SIE Exception Policy was revised to include (a) criteria for considering requests from IBRD-only SIEs to be reclassified as IDA-eligible; and (b) criteria for calibrating the terms on which IDA concessional resources are provided to SIEs. Pursuant to the revised policy, Fiji was reclassified as an IDA-eligible country effective July 1, 2019.
|*Dominica, Grenada, St. Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Tonga.|
**IDA-only status (Kiribati, Micronesia, Marshall Islands, Maldives, Samoa, Sao Tome and Principe, Solomon Islands, Tonga, Tuvalu, Vanuatu); Blends (Cabo Verde, Dominica, Fiji, Grenada, St. Lucia, St. Vincent and the Grenadines). St. Kitts and Nevis (which was granted the exception in 1985) graduated to IBRD-only status in 1994.
IDA has been the leading multilateral provider of concessional resources to small economies, accounting for 28 percent of multilateral official development assistance (ODA) to the SSF members in 2014-16.
- Small States have particularly benefited from the past four IDA replenishments primarily due to an increase in IDA’s annual minimum base allocation from SDR 1.5 million in IDA15 to SDR 15 million in IDA18, resulting in a massive scale up in IDA18 to US$2.9 billion in lending commitments (including IDA financing windows).
- With the recent re-classification of Fiji, there are 24 IDA-eligible SSF members of which 21 are Small States that receive either Grants and/or IDA Credits on the most concessional lending terms that IDA offers, Small Economy Terms—at no interest, 40-year amortization, with a 10-year grace period.
- In IDA18, Small Economy Terms (originally applicable to Small Island Economies) were extended to the four IDA-eligible Small States that are not islands (Bhutan, Djibouti, Guyana, Timor-Leste).
- In terms of actual financing, total IDA commitments (including IDA financing windows) to IDA-eligible SSF members more than doubled in IDA18 relative to IDA17, increasing from $1.2 billion to over $2.9 billion. For IDA-eligible Small States, total IDA commitments more than tripled over the same period.
IBRD Financing of Small States
Twenty-three SSF members have access to IBRD financing, of which 16 countries are IBRD-only and seven have access to both IBRD and IDA resources (Blend Countries). IBRD lending commitments to SSF members between FY15-20 amounted to over $2.1 billion. In per-capita terms, Montenegro has been the top IBRD borrower ($898), followed by Gabon ($412) and Jamaica ($366).
Thanks to the Capital Increase policy package endorsed by IBRD shareholders in 2018, eligible Small States benefit from a doubling of their IBRD base allocation and a waiver from maturity premium increases.
Developing Innovative Disaster and Climate Financing Mechanisms
The World Bank has an extensive track record of supporting the development and implementation of innovative financing mechanisms for crisis response and climate change which, given their vulnerabilities, are particularly relevant for small economies.
Since its introduction in IDA15, the IDA Crisis Response Window (CRW) has provided additional resources totaling $399 million to help 22 eligible SSF members respond to severe natural disasters (e.g. tropical storms, floods, droughts) and currently to the unfolding COVID-19 pandemic.
In 2018, Dominica received $50 million in CRW resources to help the reconstruction following Hurricane Maria, which resulted in damages estimated at 226 percent of GDP. Tonga also received $20 million from the CRW to address the adverse effects of the dual shocks of the COVID-19 pandemic and Tropical Cyclone Harold which devasted the island’s infrastructure in 2020.
The Disaster Risk Management Development Policy Financing with a Catastrophe Drawdown Option (CAT-DDO) can provide immediate liquidity to countries in the aftermath of a natural disaster. As a policy instrument, it supports the systemic and institutional improvement of climate and disaster risk management through a transformative reform agenda. The funds are preapproved based on a sound disaster risk management program and an adequate macroeconomic framework. The CAT-DDO is available to both IBRD countries and IDA countries (since IDA18). In FY20, CAT-DDOs were approved for six SSF members in a total amount of $108 million.
The Bank has also supported the establishment of two successful regional risk insurance pools–the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI). Since its launch in 2007, CCRIF has paid out US$150 million including the last pay out of approximately US$11 million for the Bahamas following Hurricane Dorian in 2019. The PCRAFI paid US$3.5 million to Tonga after Tropical Cyclone Gita in 2018.
IFC and MIGA
IFC is supporting economic diversification and resilience in Small States through investments in finance, infrastructure, agriculture, tourism and services. IFC’s Small States portfolio totaled $203 million in FY20, up from $169 million in FY19. The largest share of projects is going to Commercial Banking (47 percent), Microfinance (18 percent) and Tourism (10 percent), with small loan programs targeted at Small and Medium Enterprises (SMEs). Under its SME Facility, IFC, in collaboration with the World Bank Treasury, has set up a risk-sharing facility in São Tomé and Principe and plans to develop additional schemes for Cabo Verde and the Pacific Islands. Under the Agribusiness Facility, IFC has invested to support the Solomon Islands (tuna sector), Guinea-Bissau (fruits and vegetables), while in Bhutan, IFC has invested in a semi-green field company to produce hazelnuts for export. IFC is also providing advisory services on Public-Private Partnerships (PPPs) to nine Small States on airports, power, water and sewerage. The IFC also leverages the IDA PSW, including to support housing finance in West Africa (benefitting Guinea-Bissau), risk-sharing in the Pacific, and a private sector telecom operator in Comoros.
MIGA promotes private foreign investment through the provision of political risk insurance. MIGA’s portfolio in Small States has increased significantly from $26 million in FY18 to $176 million in FY20. The largest portion of MIGA’s exposure is in Renewable Energy, Financial Inclusion, and Green Buildings. For Small States MIGA utilizes the Small Investment Program for projects below $10 million with no minimum project size.
For more information, please see the brochure World Bank Group Support to Small States
Last Updated: Mar 31, 2021