Small states suffer from a host of inherent vulnerabilities given their small population and economic size. They are also disproportionately exposed to economic and non-economic shocks and crises and the consequences these have for macroeconomic stability and development. In combination — and despite extraordinary macroeconomic, fiscal and structural policy responses — these factors have severely impeded the ability of small states to achieve sustainable development. Inherent vulnerabilities and exposure to shocks have also proved to be a costly, stubborn and persistent challenge. In two crucial metrics — growth and participation in international trade — both long-term trends and recent data show that these countries are failing to keep pace with other developing countries and, indeed, many are falling behind. Small states, supported by development partners, need to take several steps to address both long-standing and more recent vulnerabilities: developing the blue economy and diversifying production and exports by expanding and accessing regional value chains; building climate-resilient infrastructure; increasing access to innovative sources of financing for development; and — for a growing number of small states — addressing increasingly unsustainable levels of indebtedness. Otherwise, many small states are likely to fall further behind.
Vulnerability and Debt in Small States
CIGI Policy Brief No. 83