Fiscal space for small island developing economies is crucial to the size and scale of the adaptation necessary to ensure their future existence.
Minister of Foreign Affairs and Foreign Trade, Senator Dr. Jerome Walcott, declared the need for fiscal space, when he spoke about CARICOM economies on behalf of CARICOM’s Council of Foreign and Community Relations (COFCOR), during a recent virtual roundtable meeting with US Secretary of State, Antony J. Blinken.
Minister Walcott noted that the economic situation in Caribbean countries were dire and have worsen with the effects of climate change and the COVID-19 pandemic.
“For us, some of the world’s most indebted countries, even before the pandemic, the effect has been nothing short of catastrophic … threatening the lives and livelihoods of the eight million people in Caribbean communities,” he said.
He went on to point out that even after the COVID-19 pandemic is brought under control, Caribbean countries would still have to deal with “our greatest existential threat, climate change and its effects”.
In addition, he noted that financial assistance for climate adaptation resilience, as promised from the Paris Climate Agreement, had not materialised, thus compounding Caribbean countries’ ability to deal with climate change.
Senator Walcott emphasised that attaining that fiscal space has been difficult. “When we do seek to borrow to shore up our development, many of us are confronted with the reality that the international financial institutions (IFIs) consider us to be middle income states not eligible for concessional financing, based on a skewed metric of per capita income levels, which does not consider our very vulnerable and fragile existence,” he explained.
In order to attain the necessary fiscal space, Minister Walcott proposed that a multi-dimensional vulnerability index be created and developed, which could be utilised as the broad criterion for rating countries’ potential and ability to access financial assistance from IFIs.
“The index should be developed through the collaboration of the IFIs, the Commonwealth Secretariat and our governments. The index should readily lead to more affordable financing for the region, spurring future income growth that will not only assist us, but will also support enterprises in the USA, given our trade patterns and other commercial activities with the US,” he stated.
Senator Walcott further suggested that in order for Caribbean economies to rebound and thrive as they continue to develop and diversify their economies, the IFIs needed to develop new and innovative financing mechanisms and debt instruments at more affordable rates that recognise their vulnerabilities and which contain natural disaster clauses.
“This is the only way that we can finance and assure our existence…. Global insurance rates must be more affordable, and the globe must come together to assist,” he added.
The Foreign Affairs Minister noted that the Caribbean is referred to as “USA’s third border”, and as such, how the Caribbean develops has the capacity to affect the US, and called on that country to help the Caribbean attain the necessary fiscal space it needs to develop, which is needed more now than ever.
And he expressed the hope that CARICOM states would be among the beneficiaries of a US$650 billon proposed increase in the “Special Drawing Rights” allocation from the International Monetary Fund.