Call for framework to address debt in small states

A comprehensive international framework is needed to help indebted small states, according to officials from Commonwealth small states and representatives of regional and international organisations.

This proposed framework, detailed in a new Commonwealth publication, would address the different aspects that give rise to indebted small states.

It would look at fiscal discipline in small states; focus on improving debt recording and debt management in these countries; and examine insurance and grant finance mechanisms that respond to the challenges posed by natural disasters.

Continued grants and concessional financing for small states, compensation for preference erosion and support for efforts of small states to promote private investment would also be addressed by the framework.

These recommendations emerged from a workshop held in Antigua and Barbuda in July 2007.

All conclusions from the workshop have been incorporated into a new Commonwealth Secretariat publication - ‘The Emerging Debt Problems of Small States’ - written by Dinesh Dodhia.

Bringing debt to a sustainable level

In recent years there has been a significant rise in small states which are heavily indebted. Thirteen small middle-income Caribbean economies are among the most indebted 30 emerging economies in the world.

In the six most indebted Caribbean small states, the ratio between public debt and Gross Domestic Product rose by an average of 8.5 per cent per annum in 1998 to 2003. The three next most indebted countries in the region also recorded a sharp increase in public debt ratios during that period. Similarly, debt ratios in the Indian Ocean region have also risen in recent years.

“The vulnerability of small states is exacerbated by their high debt ratios. A comprehensive framework is needed to assist them to bring their debt back to sustainable levels,” writes Mr Dodhia.

In order to meet these new challenges, participants at the workshop weighed up likely causes of debt in different economies before weighing up the prospects for dealing with these financial problems in the future.

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