New plan to end ‘vicious debt spiral’ for climate-affected Small Island Developing States

IIED executive director Tom Mitchell says a new plan to alleviate crippling levels of debt among Small Island Developing States (SIDS) represents a “significant milestone” towards building resilient prosperity.

News, 30 May 2024

The Global SIDS Debt Sustainability Support Service was launched at the Fourth International Conference on Small Island Developing States (SIDS4) in Antigua and Barbuda on 28 May.

Speaking at the SIDS4 plenary session two days later, Mitchell said the goal of the support service was to put an end of the “vicious debt spiral” affecting these countries. 

“The priority is to ensure SIDS can benefit from this service quickly, as SIDS need debt alleviation, financial protection and resilience investment urgently and in a way that outpaces rising climate and economic shocks,” he told SIDS leaders, adding that the plan now requires “remarkable cooperation” to put it into practice.

Tom Mitchell launches the Global SIDS Debt Sustainability Support Service as he addresses the general plenary of the Fourth International Conference on Small Island Developing States on 30 May

IIED co-designed the support service in close collaboration with SIDS’ leaders and industry representatives.

At its core, the support service is about fostering a new financial compact to usher in a new era of financial resilience.

It’s designed to take a holistic approach to the fiscal challenges facing SIDS, recognising that their capacity to move forward will require external legal and financial support. The plan is built on four interconnected pillars:

  1. Strategic layering of debt relief measures including pause clauses, debt restructuring, reprofiling and debt swaps. This includes innovating aggregate mechanisms to explore global debt buy-back, endowment, or restructuring mechanisms.
  2. Future protection to insulate SIDS from economic fallout due to climate impacts. This includes implementing pooled insurance products and other protective measures.
  3. Catalysing investments in resilient infrastructure and proactive community-level adaptation efforts. This will be supported by financial products and innovations that include resilience and sustainability linked bonds, voluntary carbon markets and concessional finance for resilience building projects, and
  4. Creating a support service to provide expert advisory legal and finance assistance to navigate the complexity of debt and investment negotiations, while also building capacities within SIDS.