Mr. Wu’s Blog on Economic Vulnerabilities
14 Aug 2014
- By UN-DESA on 14 Aug 2014
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- Much of the attention to SIDS has been directed to ecological vulnerabilities of SIDS. Indeed, to a significant extent it is these inherent and particular vulnerabilities that make for the special case of sustainable development of SIDS. However, as I remarked at the launch of the International Year of SIDS in February this year, what has received less attention is that these inherent vulnerabilities often exacerbate other social, economic and environmental problems. Here I would like to elaborate on some of the economic vulnerabilities.
As indicated in the name of their grouping, SIDS are characterized by smallness. This feature gives rise to economic disadvantages, including narrow resource base and dependence on a limited number of goods and services for exports, high import dependence, small domestic markets, dependence on export markets, and limited ability to achieve economies of scale.
Coastal and marine resources, for example, are the main sources of economic activities and livelihoods for most SIDS. Tourism contributes to more than half of the GDP in some SIDS; in the Caribbean region, tourism generates over $25 billion in annual revenues, accounting for a quarter of the regional GDP and six million jobs. But this heavy dependence on tourism is often impacted by natural disasters and the vicissitudes of the global economy. Today – nearly six years after the onset of the world financial crisis – SIDS are still dealing with its fallout.
The decline in tourism in the aftermath of the global financial crisis contributed to the increase in public indebtedness of SIDS. The high import prices of food, fuel and other commodities have worsened their public debt ratios. As a result, a number of SIDS have debt burdens in excess of their GDPs, with more than 20% of government revenues allocated for debt servicing. Among other effects, high debt burdens constrain SIDS governments’ fiscal space, reduce their essential public expenditures and erode their abilities to invest in physical and social capital.
Recognizing that economic growth has stalled in SIDS, Member States, in the ongoing consultations on the outcome document of the SIDS Conference, have emphasized the importance of achieving higher economic growth.
UN DESA’s Under-Secretary-General
Secretary-General for the Third International Conference on SIDS
Remoteness is another defining characteristic of SIDS that leads to economic disadvantages, especially in terms of transport and communication and access to world markets. Many SIDS face relatively higher transport costs, as they are often excluded from main air and sea transport routes, requiring relatively small and fragmented cargo deliveries. This in turn results in higher per-unit costs, eroding their economic competitiveness. Remoteness from the main trade routes also gives rise to delays in transport services.
Moreover, SIDS have to contend with high energy dependence, which absorbs a significant amount of their export earnings. With rising oil prices, fuel import bills represent up to 20 percent of annual imports of SIDS, and between 5 to 20 percent of their GDP.
An expert group convened by UNCTAD two years ago demonstrated through evidence-based studies that SIDS are significantly more vulnerable to external shocks with economic consequences; they are considerably more exposed to oil price-related shocks; and their economies are structurally more vulnerable to climate change effects.
Recognizing that economic growth has stalled in SIDS, Member States, in the ongoing consultations on the outcome document of the SIDS Conference, have emphasized the importance of achieving higher economic growth. They are deliberating on a broad range of measures in support of SIDS economies, many of which address the problems I have highlighted here.