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Overview

Small States face unique development challenges. Due to their small population and economic base, these countries are particularly vulnerable to exogenous shocks such as economic shocks, natural disasters, and climate change. With limited economic opportunities and significant migration, they often face capacity constraints.

The Small States Forum (SSF) is an important platform for high-level dialogue on how the Bank Group is helping to address Small States’ special development needs. The SSF comprises 50 members, including 42 countries classified as Small States according to the Bank Group definition (i.e., those with a population of 1.5 million or less) and eight other Small States Forum members with a population greater than 1.5 million that share similar challenges. The current Chair of the SSF is Mr. Lyonpo Namgay Tshering, Minister of Finance of Bhutan.     

While sharing common challenges associated with the small size of their economies and vulnerability to exogenous shocks, the SSF is in fact a very diverse group. There is high variation among members in terms of population size, income levels, geography and other features that result in a wide spectrum of development outcomes:

Population: Many SSF members are micro states (i.e., with a population of less than 200,000 people). Population size ranges from 12,000 people in Tuvalu to 2.97 million people in Jamaica.

Geography: SSF countries are distributed across all regions and about two-thirds are island states. The remaining one-third includes five land-locked countries (Bhutan, Botswana, Eswatini, Lesotho, and San Marino).

Remoteness: Several SSF countries, particularly islands, are among the most remote in terms of distance to the nearest international markets (e.g., Pacific islands).

Land Area: A number of island states have a very small land area (e.g., Nauru has 20 square kilometers), while non-island states such as Namibia and Botswana have 4.5 and 3.1 times the area of all small island states combined, respectively.

Fragmentation and Dispersion: Some countries are archipelagos dispersed over a broad ocean area (e.g., Kiribati has an area of 810 square kilometers distributed in 35 atolls/islands spread over 3.6 million square kilometers of ocean).

Vulnerability to Natural Disasters and Climate Change: Many SSF countries are disproportionately vulnerable to a range of natural disasters, particularly those located in disaster-prone areas. About one-third of Small States are highly vulnerable to climate change, including rising sea-levels and droughts.

Debt Burden: Significant growth volatility often associated with the impact of natural disasters and other exogenous shocks and weak fiscal management have contributed to substantial debt accumulation in many SSF countries. Public debt to GDP ratios for Small States are on average higher than for other developing countries, but they vary significantly across countries from single digits (Solomon Islands) to over 100 percent (Barbados, Bhutan, Cabo Verde) as of end 2019.

The World Bank

The disproportionate economic impact of the COVID-19 pandemic on Small States underscores their unique vulnerabilities.    

While the spread of the COVID19 infection has been contained in most Small States, infection rates have been high in some Small States in Europe, Africa and the Caribbean region. 

As a group, Small States have experienced a more pronounced economic fallout from the pandemic  than other developing countries. The economic impact has been especially severe in  Small States highly dependent on tourism (e.g., Antigua and Barbuda, Barbados, Belize, Cabo Verde, Grenada, Maldives, Mauritius, St Lucia, Fiji, Palau, Seychelles). 

In 2020, real GDP in Small States contracted by an average of 7.1 percent compared to a 1.7 percent contraction in other developing economies, with tourism-dependent Small States declining  by double digits (-34 percent in Maldives). While many Small States posted positive real GDP growth in 2021, most are projected to restore pre-pandemic GDP levels only by 2023 or even by 2024.

The social impact of the pandemic has also been high. Unemployment reached 20 to 30 percent of the labor force, with female workers disproportionally affected due to their larger participation in sectors most impacted by the pandemic such as tourism and other services sectors.

The pandemic has exacerbated already high fiscal imbalances and debt vulnerabilities in several Small States, although outcomes vary across countries. Relative to 2019, debt to GDP ratios increased by 10 percentage points or more in some Small States while others saw little or no increase.  

The war in Ukraine may further undermine the sluggish post-COVID recovery of small states, due to their unique vulnerabilities to external shocks and potentially slower global growth. 

Most small states are net food and fuel importers, and persistently high prices will result in deteriorating external accounts and adverse social impacts. Accelerating inflation will also result in financial tightening and higher international borrowing costs, which will disproportionately affect small states, as many already face exacerbated debt vulnerabilities. In addition to these broader economic spillovers, the long-awaited recovery of the tourism sector in small states with strong exposure to Russia and Ukraine will be directly affected.

Last Updated: Apr 06, 2022