A new policy brief by the UN Development Programme (UNDP) highlights the immediate need to massively invest in climate change adaptation in Small Island Developing States (SIDS) to break costly cycles of disaster and recovery.
The policy paper “Breaking through the disaster-response cycle in SIDS: aligning financing to urgent climate action” was released ahead of the 4th International Conference on SIDS (SIDS4) to be held in Antigua and Barbuda on May 27-30th. The paper calls for a more equitable and effective global financial system to support climate-vulnerable economies.
The ‘disaster response’ cycle problem, in which countries are continuously playing financial and fiscal catch-up to recover from new climate change crises is acute in SIDS as a result of their extreme vulnerability to floods, sea level rise, hurricanes and other climate emergencies. SIDS faces the critical task of breaking these cycles by ramping up investment in climate change adaptation, which provides long-term resilience to the effects of global warming.
However, it is a challenge to secure the funds for projects like climate-resilient agriculture and seawalls due to high costs and debt vulnerabilities. SIDS requires an estimated US$4.7-US$7.3 billion annually for adaptation, yet many struggle with high debt, complicating efforts to finance these essential measures.
UNDP Administrator Achim Steiner noted, “Most SIDS are unable to mobilize the upfront funding they need to adapt to the climate crisis and are forced to divert a growing share of public funding to rebuild after disasters. On average, the annual economic toll on SIDS from such disasters is estimated at 2% of GDP, a figure that is quadruple the losses experienced by larger nations, and with some countries at risk of losing more than 10% annually. SIDS exemplifies the challenge for the international financial architecture to become more responsive to and supportive of developing country needs in addressing the climate crisis.”
In its policy brief UNDP points out some of the key changes which are needed to address these challenges effectively. These include better access to effective and climate-sensitive debt treatments for countries in need, deployment and improvement of innovative financial instruments, and access to more long-term affordable funding from the official development sector.
The brief supports greater integration of climate considerations into debt sustainability assessments and argues that innovative debt instruments, such as state-contingent bonds, thematic bonds and debt-for-development swaps when designed and applied appropriately, can help countries cope better with the impacts of climate change by providing liquidity in times of need and by enabling long-term investments in resilience.
“For Small Island Developing States (SIDS), which are mostly middle-income countries with minimal contributions to global emissions, adaptation investment at scale is a vital issue. They require greater access to affordable finance on affordable terms, improved liquidity support during climate-related shocks, and more straightforward pathways to debt relief,” said George Gray Molina, UNDP chief economist.
The policy brief concludes that investing in adaptation pays off many times over with cost-benefit ratios ranging between 1:2-1:10 depending on country and resilience measure. Also, investing in adaptation will not only save on costly recovery spending and reduce development tradeoffs but will also help keep borrowing costs down as financial markets are increasingly pricing in countries’ climate-change exposure and preparedness.