• Economics:
• Finance and Debt:
• International Finance, Capital Markets and Small States

International Finance, Capital Markets and Small States

The Secretariat's work on Small States international finance and capital market issues is within the context of:

• the rising debt levels of these states;
• the problems faced in attracting private investment into small- and medium-sized enterprises as trade preference agreements are disappearing;
• increasing new international standards and regulations; and
• the need to strengthen monitoring and supervisory systems in order to be integrated into the international financial and security system.

Against this background, the Secretariat provides technical assistance, conducts workshops and facilitates meetings for its small state members in the following areas:
 
Debt

The international community has traditionally focused on the debt problems of major debtors and heavily-indebted poor countries (HIPCs). However, figures show that since 1990, small states' rate of accumulation of external debt has risen faster than low-income countries, especially in the Caribbean small states. In fact, the 1990 trend of developing countries' rate of accumulating twice as much external debt as small states, the reverse now prevails. To read more about the "Emerging Debt Problems of Small States" please click on the link below to download a paper presented at the 2005 Commonwealth Finance Ministers Meeting.

Download:

Emerging Debt Problems of Small States

Investment

Development partners and international financial institutions are increasingly focusing their enterprise development strategies on Small and Medium–Size Enterprises by improving the investment climate and attracting private investment in LDCs and SVEs. LDCs and SVE governments to varying extents have improved the investment climate. However, domestic SMEs and local entrepreneurs still experience difficulties accessing long-term debt finance from their local commercial banks.
 
Lowering the Threshold Initiative (LTT)

The Secretariat commissioned a study as part of its efforts to find ways in which development partners could facilitate the flow of debt finance to domestic SME. "Lowering the Threshold: Reducing the Cost and Risk of Private Direct Investment in Least Developed and Small and Vulnerable Economies" looks at the factors which impede investment in SMEs in LDCs and SVEs and explores ways to tackle their "endowed handicaps". These include small domestic markets; high unit costs of production; limited opportunities for specialisation of skills; country remoteness; and high costs of transportation. The "endowed handicaps" result in high costs for SMEs operating in LDCs and SVE.
 
Following publication of the report, the LTT Initiative emerged. The Secretariat is exploring options to develop innovative risk-sharing (splitting) initiatives to promote investment in economies with "endowed handicaps." The aim is to bridge the current gap in financing between short-term consumer credit and long-term infrastructure investment.
 
With this aim, the Secretariat facilitates meetings that bring together leading Domestic Commercial Banks (DCB), experts, policy-makers and stakeholders to review and discuss how existing investment instruments and policies could be strengthened to respond, more closely, to the needs of the local entrepreneurs and local financial sector.

Download:

Lowering the Threshold: Reducing the Cost and Risk of Private Direct Investment in Least Developed and Small and Vulnerable Economies 
 
The meetings have and continue to take place on a regional basis. Click here for further information. 

Commonwealth Private Investment Initiative (CPII)

Launched by Commonwealth Finance Ministers and Heads of Government in 1995, this initiative seeks to promote commercial investments in small- and medium-sized private projects. While promoting investment into perceived high-risk/high-return enterprises, it also seeks to change conventional perceptions of risk. It is an important example of the Commonwealth's ability to stimulate South-South and North-South co-operation and public/private partnerships to promote development among member countries. Under CPII, four regional funds have been established for Africa, the Caribbean, the Pacific and South Asia. They have raised more than US$200 million from Commonwealth and non-Commonwealth investment agencies and government pension funds. Three of the four are now fully invested and the fourth - for the Caribbean - is pursuing an active investment programme under new management. To find out more about other Commonwealth supported investment funds for all member countries, please click here.

International Finance

The Secretariat provides assistance to vulnerable economies in the International Finance Services Sector. Interventions in this area follow from its findings that small jurisdictions are not only excluded from global standard-setting bodies but standards impose high costs on these economies, while a disproportionate share of the benefits accrue elsewhere.

Consultants are conducting surveys on behalf of the Commonwealth into the International Service Sectors (IFSS) in a sample of SVEs. The survey covers the IFSS sector in Barbados, Vanuatu and Mauritius. ComSec seeks to promote a better understanding of the prospects of this sector in the represented sample of jurisdictions and suggest more equitable burden-sharing arrangements for bearing the costs. The preliminary results of the survey will first be presented in each of the countries during March and April, 2006. This would provide an opportunity for the relevant officials to review the preliminary findings and provide their own observations and feedback. Once relevant feedback has been incorporated, the final conclusions of the study will be presented at a meeting in London during June, 2006.

Over the past 10 years, a number of directives have been issued by international organisations which have presented significant compliance costs to developing countries, especially small states. These international commitments include the OECD's Harmful Tax Competition Initiative and Anti-Money-laundering and Countering Terrorist Financing (AML/CFT) directives. The Commonwealth Secretariat, with the assistance of First Initiative, is conducting a number of independent assessments of small international financial sectors to determine the costs required to implement international standards which are mandated upon them. The Commonwealth has commissioned a study entitled "Development Implications of International Taxation and AML/CFT Initiatives". The study sought to provide an assessment of the costs associated with implementing directives on the performance of the international financial services industry. The goal of the project is to enhance the ability of developing countries to participate more effectively in international financial markets and assist in the development of viable service industries within these countries. Assistance aims at achieving a level playing field for SVEs, also to promoting dialogue on the OECD Harmful Tax Competition Initiative by providing financial assistance for attendance at sub-group meetings.