The CMCFeature-DEVELOPMENT-Development crisis threatens Small States.

ST JOHN’S, Antigua, CMC – “The world is facing a development crisis.”

Those are the first words of a paper from officials of the World Bank Group (WBG), setting out a proposed roadmap for “urgent action” to tackle the “growing crisis of poverty and economic distress, and global challenges, including climate change, pandemic risks, and rising fragility and conflict.”

These are all conditions that impact developing countries across the globe and more small economies. To these conditions must be added a high cost of living, resulting from both the economic effects of the COVID-19 pandemic and the Russian war on Ukraine.

Yet, the World Bank claims it cannot lead such urgent action even though, as the world’s primary development funder, it should be. In its roadmap paper, the Bank discloses that its “2018 Capital package was designed to be prepared for one mid-sized crisis a decade, and not multiple overlapping crises”. It goes on to say that Bank support “is set to decline starting [in the] Financial Year 2024 and, in real terms, Bank support today is below the levels of the 1980s”.

Worsening the situation is that the populations of low-income countries are expected to rise by 25 percent by 2050, requiring more funding from the Bank if it is to help avert economic catastrophe in these countries.

In other words, the Bank says it does not have sufficient funds to cope with the needs for development financing and, thus, has called for “a massive step up in the international community’s support .” Clearly, the Bank either recognizes or has been told by the powerful governments, which control its policies, that they are unwilling to provide more resources. Therefore, the policymakers have introduced the notion that the private sector should be encouraged to contribute to multilateral financing. This is partly why the Biden Administration of the United States of America has nominated Ajay Banga, an Indian-American national and former Chief Executive Officer of MasterCard, to be President of the Bank.

Even accepting Mr. Banga’s skills in business, it is questionable if he will successfully mobilize the scale and type of financial contribution and participation that the Bank now evidently requires to fulfill its mandate.

Caribbean small states will be the principal sufferers of the Bank’s resource constraints. In a separate paper entitled “Overlapping Crises, Multiple Challenges,” Bank officials detail a gloomy picture of these countries’ current situation and prospects. Among the conditions is the rise in interest rates, making refinancing existing debt more burdensome and affording new borrowing almost impossible. In several small Caribbean states, debt service is already above the threshold of 10 percent of exports of goods (including tourism). Indeed, debt services in some Caribbean states exceed the acceptable threshold even more.

Increased interest rates will make it exceedingly difficult for those small Caribbean states, described as ‘high income,’ to cope with the increased cost of money. These states include Antigua and Barbuda, The Bahamas, Barbados, St; kitts-nevis, and Trinidad and Tobago. Despite the protests and rigorous arguments of these countries that ‘high income’ is not, by itself, a determinant of underdevelopment and that they share similar, if not exact, circumstances of other small states, the policymakers at the Bank and the International Monetary Fund, are adamant in not amending the criterion. Indeed, one World Bank Executive Board member, officially representing the Caribbean, unflinchingly declared that seeking concessionary financing for ‘high-income’ small Caribbean states was an “ask” that would not be fulfilled.

The paper on the overlapping crises confronting small states provides a prescription of actions that small states should take to “mitigate the effects of global inflation and position their economies to move past COVID-19”. One of the prescriptions is that “expenditure restraint – particularly of recurrent spending would bolster fiscal positions and reduce the need for additional debt.” At a time of high inflation, affecting the cost of living of people, decreased government revenues, and the need to cushion expenses to the poor and vulnerable, the prescriptions could have benefitted from a more realistic approach, based on direct consultation with small states.

A more practical proposal in the paper was that “the international community can help by scaling up non-concessional official financing, concessional financing, and grants; helping to leverage private sector financing; upgrading the international architecture for dealing with excessive debt .” However, nothing has happened in recent years to inspire the belief that wealthy countries and tiny states will become more responsive to the urgent development needs of developing countries.

Among many disheartening events are the failures of rich nations to honor their commitments to fund resistance and resilience to the adverse effects of Climate Change and their lukewarm response to the urgings of small states for compensation for the loss and damage that they endure every day.

The roadmap paper states, “richer countries, which significantly expanded their economies over the last decades, were the largest contributors to CO2 emissions, while small states are the most affected and face the highest adaptation costs.” The injustice cannot be more blatantly obvious.

There is also one fast-emerging issue that the Bank needs to mention in its papers. That issue is the threat to the rule of law and democracy within countries, which is now posed by the high rate of inflation, the significantly higher costs of certain foods, and higher interest rates.

These have combined to create dissatisfaction amongst populations, leading to a clamor for increased wages and protests and demonstrations in some countries, either opportunistically organized or encouraged by opposition political parties. These demands cannot be easily satisfied by small economies still struggling to recover from the impact of COVID-19, which are now engulfed by the soaring prices that are a consequence of the Russian war on Ukraine.

The crises that small states face call for responsibility by all, not the feckless pursuit of narrow political ambitions, the results of which will be disastrous for all.

The policymakers at the World Bank and the IMF should listen before deciding. In doing so, they should contemplate the consequences of rigid positions at a time when the world would benefit from the flexibility and mutually beneficial cooperation.

*Sir Ronald Sanders is Antigua and Barbuda’s Ambassador to the United States and the Organization of American States. He is also a Senior Fellow at the Institute of Commonwealth Studies at the University of London and Massey College at the University of Toronto.