The Emerging Debt Problems of Small States

image of The Emerging Debt Problems of Small States
In recent years there has been a significant rise in the indebtedness of small states. However, unlike major debtors and the Heavily Indebted Poor Countries (HIPCs), the emerging debt problems of small, mainly middle income, states have received little international recognition and attention.

Thirteen small middleincome Caribbean economies are amongst the most indebted thirty emerging market economies in the world. Similar conditions apply in a number of other small economies in Africa, the Indian Ocean and the Pacific.

Dinesh Dodhia examines the history of this indebtedness, its likely causes in different economies, and prospects for dealing with the debt problem in the future. He argues that there is a need for a comprehensive international framework to deal with it, covering:

• fiscal discipline in small states themselves

• improved debt recording and debt management

• insurance and grant financing mechanisms that respond to the challenges posed by natural disasters

• continued grant and concessional financing for small states

• adequate compensation for preference erosion, and

• support for the efforts of small states to promote private investment for diversification and growth.

This is the first substantial investigation of a newlyrecognised international problem.



Rising Debt Burdens in Small Economies

Some Stylized Facts

Small middle-income countries in the Indian and Pacific Oceans and the Caribbean are among the most indebted middle-income economies in the world (see Chart 2.1). The ten most indebted countries (with a public debt to GDP ratio of over 90 per cent in 2005) include six Caribbean economies, hereinafter called the Caribbean-6 (St Kitts and Nevis, Jamaica, Grenada, Antigua and Barbuda, Dominica and Belize), and Seychelles in the Indian Ocean, The top 20 also include St Vincent and the Grenadines, Barbados and St Lucia, hereinafter after called the Caribbean-3, as well as Mauritius in the Indian Ocean, Cape Verde in the Atlantic and Marshall Islands in the Pacific, which all have debt ratios of 60–90 per cent of GDP. The top 30 include Tonga and Samoa in the Pacific, the Bahamas in the Caribbean and Maldives in the Indian Ocean, which are all moderately indebted, with public debt ratios of 40–60 per cent of GDP. For completeness, Chart 2.1 also includes two small low-income economies in the Pacific, Solomon Islands and Papua New Guinea; the former is highly indebted and the latter moderately indebted.


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