OPEC Fund Quarterly - 2024 Q1

OPEC FUND QUARTERLY 1 2024 The OPEC Fund for International Development

LANDLOCKED STATES Cut off from the outside world

SMALL ISLANDS At the mercy of rising sea levels

The parallel predicaments of Small Island Developing States and Landlocked Developing Countries Worlds apart?

Our very existence is in danger

LET’S TALK ABOUT IT

Changing lives and giving hope

The OPEC Fund Quarterly is published four times a year by the OPEC Fund for International Development. The OPEC Fund works in cooperation with developing country partners and the international development community to stimulate economic growth and social progress in low- and middle-income countries around the world. The organization was established by the member countries of OPEC in 1976 with a distinct purpose: to drive development, strengthen communities and empower people. The OPEC Fund Quarterly is available free. If you wish to be included on the digital distribution list, please contact us via opecfund.org . Back issues of the magazine can be found on our website. The contents of this publication do not necessarily reflect the official views of the OPEC Fund or its Member Countries. Any maps are for illustration purposes only and are not to be taken as accurate representations of borders. Editorial material may be freely reproduced, providing the OPEC Fund Quarterly is credited.

EXECUTIVE EDITOR Nadia Benamara EDITOR Axel Reiserer EDITORIAL TEAM Zakaria Hanafi, Howard Hudson, Basak Pamir, Nicholas K. Smith, Julia Zacharenkova PHOTOGRAPHS Abdullah Alipour Jeddi, Carlos Opitz (unless otherwise credited) PRODUCTION Iris Vittini Encarnacion DESIGN Robin Turton, More Tea Design Ltd PRINTED IN AUSTRIA Print Alliance HAV Produktions GmbH This publication is printed on paper produced from responsibly managed forests.

PUBLISHERS The OPEC Fund for International Development Parkring 8, A-1010 Vienna, Austria Tel: (+43-1) 51564-0 Fax: (+43-1) 51392-38 www.opecfund.org

FRONT COVER ILLUSTRATION: Robin Turton, More Tea Design Ltd; Alice – stock.adobe.com; iconicbestiary – stock.adobe.com

CONTENTS

5-45

STATES OF ISOLATION Special Feature: Small Island Developing States and Landlocked Developing Countries

6-9 When small is vulnerable – and big is not always better 10-14 Fragile and Small Developing States: A short guide 15-17 Five meters high and rising: Small Island Developing States on the front lines 18-21 Shoring up for climate change: Environmental and economic insecurity in the Maldives 22-23 Healing the heart of the matter: Healthcare in Saint Vincent and the Grenadines 24-25 True Blue: Protecting the ocean’s prosperity and sustainability 26-29 Profile Nicholas Kee, Founder and CEO,

Making regional integration a catalyst for growth 30-33

Kee Farms: Pioneering regenerative farming in Jamaica 30-33 LLDCs’ regional

IN OTHER SECTIONS...

integration: A catalyst for economic growth 34-37 Good thinking: Solutions to support landlocked developing economies 38-39 Bolivia: Gearing up with science for climate and development 40-41 How AI is set to impact SIDS and LLDCs 42-43 Lesotho: Cracking the lock of geography 44-45 Bhutan: Harnessing the Himalayas

In the Field 46-47 Tajikistan:

Spotlight 50-53

We never work alone: OPEC Fund and OECD DevCom network workshop for global communications professionals Events 54-61 54-55 World Governments Summit in Dubai 56-59 Climate Finance Workshop in Vienna 60-61 OPEC Fund mission to Uganda The Back Page 62 2023: The OPEC Fund year in review

The Guliston- Farkhor-Panj- Dusti road reconstruction

will enhance the country's development prospects Development News 48-49

New OPEC Fund projects in Colombia, the Comoros, North Macedonia, Tajikistan and Uganda

Photo: (mountains): satori – stock.adobe.com

EDITORIAL

WORLDS APART

Dear Reader,

W hether fishing in the middle of the ocean or farming in the boundless interior, vulnerable communities have one thing in common: Help takes time to arrive. When disaster strikes, options are extremely limited and expensive for getting people out and flying supplies in. Climate change raises the stakes even more and brings the demands of relief and development to a whole new level of difficulty – an existential threat for many Small Island Developing States (SIDS). A top priority for the Maldives, an island nation deep in the Indian Ocean, is to shore up essential infrastructure including flood defenses and freshwater facilities (page 18). Most things are possible, despite the endless vicious cycle of disaster, debt and (re)development. But what about the things beyond a nation’s control, like soaring ocean temperatures? “If we overshoot 1.5°C by 2030, then there’s a 90 percent chance that all our coral reefs will die off,” says Khadeeja Naseem, former Maldives Minister of State for Environment, Climate Change and Technology in our interview. “That will shut down our tourism and our fisheries industries – and put our very existence in question.” Many emerging economies are banking on the UN “Loss and Damage Fund”, but particularly the younger generations are looking closer to home at nature-based solutions. In Jamaica, we hear from entrepreneur Nicholas Kee, who has won praise from the World Bank and UN Development Programme for his work on water quality, biodiversity and removing carbon from the environment

Developed Countries (page 44). With its vast potential for hydropower and dense forest cover, this Himalayan kingdom has become the only carbon- negative country in Asia (and one of just three worldwide). Other Landlocked Developing Countries (LLDCs) are faring less well, however, especially in Africa and the Americas. Farmers in Bolivia first pray for rain, but then desperately hope for those rains to stop (page 38). New climate patterns are oscillating between “dryer El Niño years and wetter La Niña years,” says Mauricio Céspedes Quiroga, Vice Minister of Science and Technology in our interview. “We previously had some time to recover between each phenomenon – perhaps two or three years – but now they’re occurring consecutively.” A world away in Lesotho, an enclave of South Africa, we hear another angle of a similar story (page 42). As problems mount up on the back of climate change, Maphakamile Xingwana, Principal Secretary at the Ministry of Environment and Forestry, makes an impassioned plea to feed her people: “At the very least we need to acquire seed varieties that are more resistant to the impacts of climate change, including higher temperatures and less water.” From wheat seeds to seaweed, glacial runoff to bleaching reefs, highland hinterlands to hot tub oceans, this edition covers the full spectrum of challenges faced by SIDS and LLDCs. We wish you a satisfying, if sobering, read.

Vulnerable communities have one thing in common: Help takes time to arrive.

(page 26). His secret ingredients for local resilience? Seaweed meadows and oysters. “If the ocean were a country, it would have a seat at the G7,” says Valerie Hickey, Global Director of Environment, Natural Resources and Blue Economy at the World Bank – not least because our offshore ecosystem is thought to be worth somewhere in the region of US$2.5 trillion per year (page 24). Our handy explainer looks into the many shades of “blue” – from backing sustainable fisheries to harnessing tidal energy to boosting zero-carbon shipping. We also hear how drones and artificial intelligence are helping the Seychelles to monitor its exclusive economic zone of well over a million square kilometers of ocean and prevent illegal fishing. Shifting focus from the high seas to the roof of the world, we see how Bhutan is harnessing glacial runoff, as it ramps up electricity exports and graduates from the UN list of Least

Howard Hudson, Senior Editor

SPECIAL FEATURE

For Landlocked Developing Countries and Small Island Developing States development is more than just another word. As if under a magnifying glass, they reveal the multiple issues our continent has to deal with. And as this Special Feature shows: The clock is ticking… LLDCS & SIDS

LLDCS AND SIDS

WHEN SMALL IS VULNERABLE ...AND BIG IS NOT ALWAYS BETTER

Small Island Developing States and Landlocked Developing Countries are facing different, yet comparable challenges. Two conferences later this year could prove decisive for their future By Axel Reiserer, OPEC Fund

T he coming months will be crucial for some of the most vulnerable countries in the world. From May 27 to May 30, the international community will gather in Antigua and Barbuda for the 4th International Conference on Small Island Developing States (SIDS). UN Secretary-General António Guterres has set the bar high: “Small island states do not lack ambition, they lack finance. Developed countries must deliver, honouring the promise of US$100 billion a year and delivering a road map to double adaptation finance by 2025.” Only a few weeks later, Landlocked Developing Countries (LLDCs) will meet for their third global conference under the auspices of the UN from June 18 to 21 in Kigali, the capital of Rwanda. The country is hosting the event with first- hand experience: Rwanda is a landlocked country and transportation costs for imports and exports are among the highest in the world, according to the US International Trade Administration. This is a fate Rwanda shares with other countries in the world with no direct access to the sea, “which leads to geographical isolation from international markets,” as the Organisation for Economic Co- operation and Development (OECD, an intergovernmental organization) puts it. Its Development Assistance Committee (DAC) counts 32 developing countries in this group where import

and export of goods and services need to transit through other countries, generating high trade costs and major logistical and infrastructure challenges. Such high transport costs erode the competitiveness of LLDCs, which spend almost twice as much of their export earnings on transport and insurance services as the average for developing countries. Due to the many inherent disadvantages (economic or otherwise) suffered by LLDCs, the majority of them also belong to the additionally dire group of Least Developed Countries (LDCs, see page 10). Outside of Europe,

there is not a single highly developed landlocked country and nine of the 12 states at the bottom of the Human Development Index (a UN summary measure of average achievement in key dimensions of human development) are landlocked. Such countries register 6 percent less economic growth than their non-landlocked counterparts, says the UN Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN- OHRLLS). The body, established in 2001, today serves 92 vulnerable states: The 47 LDCs, 32 LLDCs (16 of which are in Africa) and 39 SIDS. In total, this group accounts for more than 1.1 billion people. The conference in Rwanda will build on the “Vienna Programme of Action for LLDCs 2014-2024” aimed at accelerating sustainable development with six priority areas: Transit policy; infrastructure development and maintenance; international trade and trade facilitation; regional integration and cooperation; structural economic transformation, and implementation. Reviewing the progress to date, the UN arrives at a rather gloomy assessment: “We note with great concern the fragile and highly uncertain global socioeconomic outlook,” an official document stated in November 2023. While acknowledging “some

The 92 vulnerable states are home to more than 1.1 billion people

SPECIAL FEATURE

29 25

Landlocked Developing Countries and Small Island Developing States * Also defined as Least Developed Countries (LDCs)

LLDC

SIDS

1. Afghanistan* 2. Armenia 3. Azerbaijan 4. Bhutan 5. Bolivia 6. Botswana 7. Burkina Faso* 8. Burundi* 9. Central African Republic* 10. Chad*

14. Kyrgyzstan 15. Lao PDR* 16. Lesotho* 17. Malawi* 18. Mali* 19. Mongolia

28. Turkmenistan 29. Uganda* 30. Uzbekistan 31. Zambia* 32. Zimbabwe

1. A ntigua and Barbuda 2. Bahamas 3. Barbados 4. Belize 5. Cabo Verde 6. Comoros* 7. Cook Islands 8. Cuba 9. Dominica 10. Dominican Republic 11. Fiji 12. Grenada 13. Guinea-Bissau* 14. Guyana

15. Haiti* 16. Jamaica 17. Kiribati* 18. Maldives 19. Marshall Islands 20. Micronesia

28. Singapore 29. St. Kitts and Nevis 30. St. Lucia 31. S t. Vincent and the Grenadines 32. Seychelles 33. Solomon Islands* 34. Suriname 35. Timor-Leste* 36. Tonga 37. Trinidad and Tobago

20. Nepal* 21. Niger* 22. North Macedonia 23. Paraguay 24. Moldova 25. Rwanda* 26. South Sudan* 27. Tajikistan

(Federated States of) 21. Mauritius 22. Nauru 23. Niue 24. Palau 25. Papua New Guinea 26. Samoa 27. São Tomé and Príncipe*

11. Eswatini 12. Ethiopia* 13. Kazakhstan

38. Tuvalu* 39. Vanuatu

progress to close missing links and expand transport infrastructure” in the past decade, the review states that “road and rail transit networks remain largely constrained both in quality and in quantity.” The negative impact on the economy is further exacerbated by the fact that African LLDCs also remain far behind in “fully harnessing the benefits of the digital economy.” Although the number of internet users in landlocked developing countries increased from 29 percent in 2019 to 35 percent in 2021, this is still far behind the world average of 63 percent. What makes matters worse: More than 60 percent of the LLDC’s total population still does not have access to electricity and the rural- urban supply gap remains significant. The paper also notes the adverse effects of climate change and warns

that “the increasing frequency and intensity as well as the number and scale of environmental disasters and their devastating impacts are undermining” not only the implementation of the Vienna Programme of Action, but also the 2030 Sustainable Development Agenda. The main answer to these concerns is money. But the fiscal space of many countries is very narrow and international support also remains behind what is needed. The UN calls for “a significant increase in financing for sustainable development, to the tune of at least US$500 billion per year, to be delivered through a combination of concessional and non-concessional finance.” Meanwhile, the SIDS’ gathering in June has already been dubbed “the most important of the decennial conferences

to have ever taken place” by the global affairs think tank ODI. Four issues that will need to be addressed are eligibility for Official Development Assistance (ODA), access to climate finance, long- term debt sustainability, and climate and environmental justice. The conference will review the Small Island Developing States Accelerated Modalities of Action (SAMOA) Pathway that expanded the mandate of UN- OHRLLS in recognition of the significant risk that sea-level rise and other adverse impacts of climate change pose to SIDS. For many of these countries, climate change represents the gravest threat to their very existence. The current debate about the future of globalization, free trade and international development funding has special significance for the SIDS. Many of those countries benefited from their

integration into the global economy, moving out of export agriculture and into tourism, alongside unorthodox strategies such as offshore finance and high dependence on remittances. While these approaches generated foreign exchange, they are volatile and depend on free flows of human and financial capital. Even though they are responsible for less than 1 percent of global greenhouse gas emissions, the impacts of climate change will hit SIDS more rapidly and forcefully than any other group of countries, threatening their survival in an existential way. As early as 2009 the Maldives issued a stark warning with the world’s first underwater cabinet meeting: “We are trying to send our message to let the world know what is happening and what will happen to the Maldives if climate change isn’t checked,” said then President Mohamed Nasheed, adding, “If we can’t save the Maldives today, you can’t save the rest of the world tomorrow.” The stunt did not fail to draw attention. The underwater cabinet meeting made headlines around the world. But did it change the course of their fate or that of approximately 65 million people worldwide who are extremely vulnerable to the impacts of climate change? According to the United Nations Development Programme (UNDP), “from 1970 to 2020, SIDS lost US$153 billion due to weather, climate and water- related hazards – a significant amount given that the average GDP for SIDS is US$13.7 billion. For those SIDS whose land lies only 5 meters or less above sea level, projected sea level rise represents a direct threat to their existence.” The International Panel on Climate Change (IPCC) understands SIDS’ vulnerability in light of several interconnected risks with grave consequences: SIDS host 12 percent of the global bird population and 10 percent of mammals, yet many species are at risk of extinction. Sea level rise is projected to increase, which will lead to significant flooding and storm surges. For example, the Comoros predicts a loss of 734 hectares of agricultural land and displacement of about 10 percent of the population across the archipelago by 2050.

“As early as 2009 the Maldives issued a stark warning with the world’s first underwater cabinet meeting”

expenses and the cost of borrowing. For example, tuna stocks are expected to decline due to climate change, causing major economic losses to Pacific SIDS. Overall estimated losses are staggeringly high: The OECD speaks of economic losses reaching over US$78 billion, mostly since 2000 and mostly in the Caribbean. The World Meteorological Organization estimates that SIDS have lost US$153 billion since 1970, a number also quoted by the UNDP. When looking at individual losses and damages in specific SIDS, these figures take on another dimension: the World Bank estimates that a natural disaster can cause economic losses equal to 200 percent of GDP, as happened to Grenada with Hurricane Ivan in 2004. Temperature increases are set to raise mortality rates among outdoor workers and lead to a greater prevalence of diseases. Climate change will increasingly impact local food systems, affecting food security, increasing levels of malnutrition and leading to

Surrounded by saltwater, SIDS’ freshwater supply is especially

vulnerable to climate change, affecting these islands’ inhabitants. Forty-four percent of SIDS have reached the water- stress threshold due to urbanization and population growth, combined with longer and more intense droughts. Settlements and infrastructure are increasingly exposed to extreme events in SIDS with sizeable impacts on climate- sensitive industries such as agriculture, fisheries, transport, energy and tourism. These sectors are key to SIDS’ GDP and strain public finances by increasing

SPECIAL FEATURE

higher rates of food-borne and non- communicable diseases. In 2019, Cyclone Kenneth severely damaged the agricultural sector in the Comoros, wiping out 16 percent of its GDP, making the country dependent on humanitarian aid and exacerbating food insecurity. Economic growth in SIDS is relatively low compared to other developing countries and highly concentrated in a few sectors. For example, fish exports account for nearly 60 percent of GDP in Kiribati and the Marshall Islands, while tourism makes up 50-80 percent of GDP in the Maldives, Palau and Vanuatu. Compared to other groups, SIDS have significantly higher economic vulnerability, leaving them very exposed to external shocks and continuous economic decline. Just like LLDCs, Small Island Developing States are focusing their efforts on mobilizing external funding. Twenty-eight SIDS have fully costed Nationally Determined Commitments under the Paris Agreement adopted in 2015, which in total will require US$287 billion from multilateral climate funds and other sources to implement over the next decade, says ODI. Because SIDS are considered “particularly vulnerable” by the Green Climate Fund, a UN entity that assists developing countries in adaptation and mitigation, other climate funds should allow for greater access to climate finance. However, problems persist and SIDS receive on average far less finance for climate resilience than Least Developed Countries. Most finance has long been directed towards large-scale mitigation projects, which SIDS do not generally need. Furthermore, SIDS are generally seen as poor investments as they are small and generate low returns. A further issue for SIDS is that existing sources of climate financing are fragmented and have different application processes that make different demands of governments. The introduction of the “loss and damage” concept at COP27 recognizes that SIDS are disproportionally affected by climate change, while having contributed very little to the conditions that are threatening their existence. “SIDS are responsible for only 0.2 percent of the global carbon emission and yet

suffer most from the impact of climate change,” the UN says. In light of this, delivery of finance is an increasingly existential concern: Current disaster risk financing mechanisms such as insurance and other instruments do not cover more than 10 percent of losses. A possible complementary source of finance is ODA. But here SIDS face two problems. The first is eligibility and concessional financing: taking gross national income per capita as the key measure ignores the distinctive vulnerabilities of SIDS. The second is the allocation of development finance: SIDS receive less than 6 percent, mostly in the Pacific, of all ODA, according to the UNDP. The problem for multilateral development banks and international financial institutions is that SIDS in many ways are different from their usual clients: their financing needs are generally perceived as too small, yet also too risky and they are thought to lack capacity to manage large investments. A new approach is currently under discussion at the UN with the possible introduction of a Multidimensional Vulnerability Index (MVI) to help affected countries break free from their current “Catch-22”, as the UN-OHRLLS says: “Most SIDS are not the poorest nations: but their costs are so much greater – and accessing financing is more difficult.” The index will combine gross national income measurement with climate vulnerability, access to finance and debt relief support in order to reflect both economic and ecological vulnerability. Such a new index still needs to be fine- tuned and adopted by the UN General Assembly. Even then, only strong buy-in from governments and international development agencies will secure its success. Experts are cautiously optimistic. The think tank ODI writes: “The process to establish a MVI has given renewed hope and impetus. It could become a vital tool to help small island nations gain access to the concessional financing that they need to survive the climate catastrophe, to improve their long-term national planning, service their debts and sign up to insurance and compensation schemes that may be their last hope when the water rises.”

SIDS: Interconnected areas of vulnerability

Impact on energy, tourism and transport

Sea level rise, flooding and storm surges

Threat to water supply and risk of drought

Risk of extinction of birds, mammals and sealife

Photos (top to bottom): Nataliya Hora/Shutterstock.com; ChameleonsEye/Shutterstock.com; arrowsmith2/Shutterstock.com; Rich Carey/Shutterstock.com

LLDCS AND SIDS: ECONOMY

FRAGILE AND SMALL DEVELOPING STATES The OPEC Fund has developed a new approach to vulnerable countries and instruments that helps tackle some of the difficulties they are facing By Angus Downie, OPEC Fund, Senior Economist – A SHORT GUIDE –

SPECIAL FEATURE

I n 2021, the OPEC Fund split its portfolio into Ordinary Capital Resources (OCR) and Special Capital Resources (SCR). This

linked to their distinct conditions. This renewed approach is framed within a Performance Based Allocation (PBA) system, which demonstrates how the combination of larger, more consistent and reliable funding will help achieve these countries’ development goals while at the same time enabling the OPEC Fund to maximize its development impact. The PBA, in turn, is driven by the results calculated by the OPEC Fund’s annual Country Policy & Institutional Assessment (CPIA). Classification of FSDS There is no agreed definition of what constitutes an FSDS. However, they do share many common characteristics: they are typically low income, have certain fragilities, may also have experienced conflict, and may be a small island. The World Bank, IMF, Commonwealth and the UN generally

use a small population of 1.5 million or less as the main defining feature 1 . Despite the diversity, the IMF and World Bank consider that several countries meet most of the criteria as set out in Table 1. This classification helps frame how the OPEC Fund thinks about and defines these states. However, population size is not always a helpful criterion as explained by the UN 2 : “Small states are incredibly diverse, with greatly varying sizes, populations, economies, natural resources, and vulnerabilities. Within the Forum of Small States at the UN, the population of member states ranges from less than 10,000 to more than 10 million. The unofficial category of ‘small states’ includes some of the most and least developed nations in the world, resource-rich and resource- scarce countries, and both island and landlocked states.”

enabled the institution to manage its resources and operations in the best possible way. While OCR includes partner countries with a higher level of economic development, the creation of the SCR special fund allowed the institution to grow its operations in the least developed countries by providing long- term and low-cost loans to support economic and social development. SCR partner countries display a range of factors: institutional weakness, fragility, conflict, and/or climate change precariousness. The OPEC Fund has developed a new approach to these so-called Fragile and Small Developing States (FSDS) with instruments that will help tackle some of the difficulties

Table 1: IMF and World Bank – Classification of Small States

Africa

Asia and Pacific

Europe

Middle East and Central Asia

Western Hemisphere

• Cabo Verde • Comoros • Eswatini • Mauritius • São Tomé and Príncipe • Seychelles

• Bhutan • Fiji • Kiribati • Maldives • Marshall Islands • Micronesia • Palau • Samoa • Solomon Islands • Timor-Leste

• Montenegro

• Djibouti

• Antigua & Barbuda • Bahamas • Barbados • Belize • Dominica • Dominican Republic • Grenada • Guyana • St. Kitts & Nevis • St. Lucia • St. Vincent & the Grenadines • Suriname • Trinidad & Tobago

• Tonga • Tuvalu • Vanuatu • Nauru

• Botswana (>1.5m) • Equatorial Guinea (fuel exporter) • Gabon (>1.5m) • Gambia (>1.5m) • Guinea-Bissau (>1.5m) • Lesotho (>1.5m) • Namibia (>1.5m)

• Brunei

• Cyprus (advanced) • Estonia (advanced) • Iceland (advanced) • Malta (advanced) • San Marino (advanced)

• Bahrain

• Jamaica (>1.5m)

(fuel exporter)

• Qatar (>1.5m)

Note: Microstates are shown in italics

Source: IMF report “Engagement in Small States”, June 2020

1 World Bank: https://www.worldbank.org/en/country/smallstates and https://www.worldbank.org/en/topic/fragilityconflictviolence/overview#1 and https://www.worldbank.org/en/topic/fragilityconflictviolence/brief/harmonized-list-of-fragile-situations IMF: https://ieo.imf.org/~/media/7AC76DCE2C6F4AF1A5BAFFEA3DB51936.ashx#:~:text=The%20IMF%20classifies%20as%20FSDS,this%20category%20(Table%201 Commonwealth: https://thecommonwealth.org/our-work/small-states 2 UN (2014): “Small States at the UN: Diverse Perspectives, Shared Opportunities”: https://www.ipinst.org/wp-content/uploads/publications/ipi_e_pub_small_states_at_un.pdf

ECONOMY

Table 2: SCR Partner Countries and Categorization

By including states that have high levels of fragility but are not “small” in terms of geographic size or population (such as the Democratic Republic of the Congo) or are landlocked, a more comprehensive understanding of small states can be reached (Table 2). By taking into account a country’s debt stock, debt servicing, and debt sustainability, this can further enhance the understanding of the key factors that help determine what a small state is. Essentially, all SCR countries are considered either fragile, conflict- affected, an island or small. Key development challenges FSDS face unique development challenges. While sharing common challenges associated with the small size of their economies and vulnerability to external shocks, FSDS represent a very diverse group of countries. A lack of economic scale, often remote location and particular geography (such as being landlocked), health-related emergencies, and vulnerability to climate change and natural disasters lead to particular needs that sometimes cannot be easily met. Moreover, with limited economic opportunities and significant migration, FSDS often face capacity constraints, further undermining their ability to grow and develop. FSDS share many wide-ranging and distinct characteristics: • Population: Many FSDS are micro states (i.e. with a population of less than 200,000) such as Tuvalu’s roughly 11,204 residents. While also being an island, Madagascar has a population of nearly 30 million, so although it does not meet the micro population criteria it is nonetheless a fragile island state (reflected in environmental risks and high levels of poverty). States such as DR Congo, with a population of nearly 90 million, also do not meet the small (geographic) state criteria – but considering the high level of fragility in the country (notably conflict and institutional weakness), it is a credible candidate for FSDS status. Overall, population size is an important determinant – either because a small population cannot drive or sustain a large and

Country/Region

Fragile a

Conflict b

Landlocked

Small State c

Island State Debt Distressed

ASIA/PACIFIC 1 2 Bhutan 3 Maldives

Afghanistan

Yes Yes Yes

Yes

Yes Yes

High

Yes Yes Yes Yes

Moderate

Yes Yes Yes

High

4 Solomon Islands Yes

Moderate

5 Tonga

Yes

High

SUB-SAHARAN AFRICA 16 Benin

Yes Yes Yes Yes Yes

Moderate Moderate

17 Burkina Faso

Yes

Yes Yes Yes

6 Burundi

High High High

18 Chad

7 Comoros

Yes

19 Congo, Dem Rep Yes

Yes

Moderate

8 Djibouti 20 Gambia 22 Guinea

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Yes Yes

High High

Moderate

21 Guinea-Bissau

Yes

High

9 Lesotho 23 Liberia

Yes

Moderate Moderate Moderate In distress Moderate Moderate In distress Moderate Moderate

10 Madagascar

Yes

11 Malawi

Yes Yes

24 Mali

Yes

25 Mauritania 12 Mozambique

Yes Yes

26 Niger

Yes Yes

13 Rwanda

27 Sierra Leone

High

28 Togo

Moderate In distress In distress

14 Zambia

Yes Yes

15 Zimbabwe

LATIN AMERICA/CARIBBEAN 29 Dominica Yes

Yes Yes

Yes Yes Yes Yes

High

30 Grenada

Yes Yes Yes

In distress

31 Haiti

High

32 St. Lucia 33 St. Vincent

Yes

…

& Grenadines

Yes

High

MIDDLE EAST/EUROPE/CENTRAL ASIA 34 Kyrgyzstan Yes

Yes Yes

Moderate

35 Tajikistan

Yes

High

a Fragile reflects exposure to natural disasters and climate change, weak socioeconomic fundamentals, institutional weakness, unfavorable terms of trade etc. b Conflict reflects civil war, war in neighboring country, post-conflict environment, political instability etc. c Country with a population +/- 1.5 mn people. d Risk of Debt Distress as per latest WB/IMF classification. e SCR Country yet to be approved.

• Geography: FSDS are distributed across all regions of the world and about two-thirds are island states. Many FSDS also have large, extensive and distinct geographical features such as mountain ranges, deserts, jungles and coastal expanses that inhibit transport, communications and connectivity.

sophisticated economy, or vice versa a large population in a fragile state can sustain endemic poverty. Moreover, high GDP per capita is not a clear sign that a country is in a solid economic position and is also not fragile (for example, the Maldives, Grenada, Kyrgyz Republic).

SPECIAL FEATURE

• Remoteness: Several FSDS, particularly islands, are among the most remote in terms of distance from international markets (e.g. the Pacific islands). At the same time, some larger states have internal areas that are remote and difficult to reach (for example Mali and Niger). • Land area: A number of island states have a very small land area (e.g., Nauru is just 20 km 2 ), while non- island states such as Tajikistan and DR Congo have vast, empty areas that are difficult to traverse. • Fragmentation and dispersion: Some FSDS are archipelagos dispersed over a broad ocean area. Kiribati, with an area of 810 km 2 , is spread over 35 atolls/islands covering around 3.6 million km 2 of ocean; while the Maldives has an area of nearly 300 km 2 comprising a chain of 26 atolls spanning almost 90,000 km 2 . • Vulnerability to natural disasters and climate change: Almost all FSDS are disproportionately vulnerable to a range of natural disasters, particularly those located in disaster- prone areas (such as the Caribbean with volcanic eruptions, hurricanes and rising sea levels). About one- third of FSDS are highly vulnerable to climate change, including rising sea levels, flooding and droughts. Moreover, only a small portion of climate finance is deployed in FSDS countries, hence MDBs’ call for greater climate financing for these countries. • Shallow economies: Many FSDS do not have deep, broad economies with multiple sub-sectors each producing employment, tax revenues and export earnings. Instead, there are often just one or a few key sectors that generate revenues, such as hydrocarbons (Chad), minerals (Guinea), or tourism (most Caribbean islands). This lack of diversification creates strong interdependence with

• Debt burden: Significant growth volatility often associated with the impact of conflict, natural disasters, and other external shocks and weak fiscal management have contributed to substantial debt accumulation in many FSDS. Debt levels for these countries are on average higher than for other developing countries, although there is considerable diversity across individual countries. It is also important to recognize that, given their high and increasing debt levels, many FSDS are in urgent need of debt relief (the 2020-21 Debt Service Suspension Initiative provided an initial albeit temporary start 3 ), which has repercussions on new lending. The above criteria aim primarily to be a starting point to help the OPEC Fund identify how to approach and strengthen its engagement in difficult and complex SCR partner country environments. Given the challenges faced by most of these countries, the OPEC Fund is

“Many FSDS have large, extensive and distinct geographical features that inhibit transport, communications and connectivity.”

shifts in global commodity prices, which in turn leads to booms in fiscal and export revenues that are often not well-invested, and busts leading to slowing growth and rising poverty.

3 https://www.worldbank.org/en/topic/debt/brief/covid-19-debt-service-suspension-initiative#:~:text=From%20May%202020%20to%20December,the%20initiative%20on%20 comparable%20terms

ECONOMY

seeking more ways to engage (aligned with Country Partnership Strategies) to help them achieve their development goals within the SCR resource envelope. This has led to the development of the OPEC Fund’s Country Policy and Institutional Assessment (CPIA) as a key input to the Performance Based Allocation (PBA) system (see below). Building resilience to the challenges that FSDS face includes access to more financial support and strengthening capacity through technical assistance grants and, where appropriate, innovative financial solutions to better manage SCR partner countries’ respective development strategies. Prior to the COVID-19 pandemic, FSDSs faced significant constraints in mobilizing sufficient resources to build the necessary productive resources and infrastructure they need for sustainability, on top of financing the costs of disaster recovery. In recognition of the need to mobilize sufficient resources, the OPEC Fund has a long-standing commitment to support FSDS development through innovative co-financing mechanisms, and more recently, stand-alone financing for program loans. This is particularly relevant for small economies (such as Botswana) given their vulnerabilities. SCR Strategy: Country policy and institutional assessment & performance based allocation system for FSDS Part of the solution in engaging more dynamically is provided by using the results generated by the OPEC Fund’s Country Policy and Institutional Assessment (CPIA) as a key input to the Performance Based Allocation (PBA) system. In essence, the CPIA and PBA system provide a solid foundation to help guide the OPEC Fund’s engagement with FSDSs that are facing difficult and complex situations in a manner tailored to their respective environments. In principle, the CPIA is an annual measurement of the quality of a country’s policies and institutions based on publicly available information and indicators, also providing insights into fragility and weakness. Many FSDSs have high levels of policy, institutional, and

social fragility, as identified by the most recent CPIA. Overall, the CPIA provides a robust methodology for assessing SCR countries’ policies and institutions – the key tools that help support economic development. The CPIA country scores feed into the PBA system, which takes into account population size, GDP per capita, and other relevant criteria. Based on country needs, the PBA system allocates SCR resources to help determine the size of the funding envelopes over a three

case. The primary purpose of the PBA system is to ensure that the OPEC Fund’s strategic and lending focus in FSDS countries is adapted and tailored to the diverse challenges faced by these countries. This is achieved by recognizing the nature and severity of development challenges, as well as the unique characteristics of each FSDS based on population size, geography and remoteness. This allows for the most appropriate potential level of funding per SCR partner country to address their specific challenges. Moreover, the outputs of the CPIA and PBA system enhance the OPEC Fund’s engagement with its smallest and most vulnerable partner countries by providing a fairer share of SCR financial resources, thereby helping to strengthen partnerships. Longer-term lending and support Despite SCR partner countries’ large financing needs, Multilateral Development Banks (MDBs) have not been able to provide full support because of various challenges (such as weak capacity, COVID-19, and disruptions from the war in Ukraine). The PBA system provides greater certainty that a systematic allocation of funds is available over the three-year business plan cycle to help meet these needs – certainty that was missing previously, which undermined the OPEC Fund’s longer term commitment to building stronger partnerships with SCR partner countries. With the expectation that the SCR financial resource envelope will rise in line with the forecast increase in OCR net income, the OPEC Fund now has the ability to engage more actively, underpinned by a solid PBA framework over the longer term. In turn, this should help drive a virtuous circle, whereby more consistent and planned lending envelopes will enable more partnerships to be developed, which in turn will leverage more funds that will generate higher levels of investment into SCR partner countries – stimulating resilient and sustainable growth, poverty reduction, and overall development effectiveness. This way a vicious circle is being transformed into a virtuous circle.

“The OPEC Fund has a long-standing commitment to support FSDS development through innovative co-financing mechanisms, and more recently, stand- alone financing for program loans.”

year period (in-line with the OPEC Fund’s rolling three year Business Plans). The PBA system provides welcome additional help for FSDS to overcome the challenges they face, particularly in the post-COVID environment. Moreover, the CPIA and PBA system ensures sound prioritization, selectivity, consistency, and suitability of financial and Grant support as and where needed. Those FSDS countries that are most in need, as recognized by the CPIA results, tend to receive a higher allocation of financial resources through the PBA system than would otherwise be the

SPECIAL FEATURE

SMALL ISLAND DEVELOPING STATES: CLIMATE CHANGE

FIVE METERS HIGH AND RISING

In the war against climate change, Small Island Developing States are on the front lines. But these tiny countries are given little to fight the battles to come By Nicholas K. Smith, OPEC Fund

B lue water, warm weather and an infinite oceanic horizon. These things might make the dream holiday getaway, but for people living in Small Island Developing States (SIDS) those same things are less a dream and more a nightmare. Climate change will affect every nation on earth, but not all in the same way. Addressing these varied challenges is all the more

difficult for developing countries and even more so for SIDS, a special sub-set that faces the unique risk of their entire nations being obliterated or rendered uninhabitable. Though there is a host of varied threats associated with climate change, two in particular are especially harmful to SIDS: rising sea levels and extreme weather events.

CLIMATE CHANGE

“In July 2023, a buoy in the Florida Keys measured a temperature of 101.1°F (38.4°C). Headlines proclaimed Florida had hit ‘hot-tub levels.’”

Damaged flood defenses in the Maldives

Water, water everywhere Kiribati has a maximum elevation of 81 meters, the Bahamas tops out at 63 m and the Maldives and Tuvalu each stand small at only 5 m. With numbers like these, it’s no wonder that sea level rise represents such an existential threat to SIDS. The amount of water on earth doesn’t change, though its distribution does. When temperatures are warmer a lot of that water stored as ice finds its way into the ocean, though that’s not the only way sea levels increase. Thermal expansion also plays a role, albeit a smaller one, alongside ice melt as to why ocean levels rise. Simply put, water expands as it gets warmer – and the water is always getting warmer. In July 2023, a buoy in the Florida Keys measured a temperature of 101.1°F (38.4°C). When the news broke, many of the headlines proclaimed Florida had hit “hot-tub levels.” According to the National Oceanic and Atmospheric Administration, which published the data, normal water temperatures for that area and time of year should have been between 23°C - 31°C, in other words, too cold for a comfortable hot tub. More recently, the Copernicus Climate Change Service announced that January 2024 was the warmest on their record books. Taking the previous 12-month period into account, the EU agency also recorded an average temperature of 1.52°C above the 1850-1900 pre- industrial average.

To get an idea of how ocean levels may rise in conjunction with warmer temperatures, NASA’s Sea Level Projection Tool offers a range of different scenarios. If temperatures are kept to the target of 1.5°C, sea levels are projected to increase about 0.44 m by the end of the century. Under the most extreme warming scenario (which is unlikely but possible), sea levels could rise by 1.6 m by 2100. If waters rise in places like Florida, residents can escape inland. For SIDS, there is no such escape route, a fact made all the more dire in another major climate-related danger. A Category 5 problem A more immediate, short-term problem facing SIDS are extreme weather events, such as tropical cyclones.

storms. Maria was the first Category 5 storm to hit tiny Dominica. No corner of the island was unaffected; debris was strewn everywhere, all of the country’s medical centers were damaged, and lingering flooding complicated rescue and clean-up efforts. By one estimate, 98 percent of the island’s roofs were damaged. Making matters worse, Hurricane Maria knocked out Dominica’s intranet, cellular and radio services, cutting it off from the world. Eventually, 65 people were dead and damage surpassed US$1 billion, an especially high cost for a country of only 72,000 people. Warmer waters and moist air are fuel to hurricanes, and more powerful storms only add to their individual effects: such as flooding from increased rainfall, storm surges and sea rise.

2017 was an especially illustrative year, when Hurricanes Harvey, Irma, Maria and Nate hammered the Caribbean. The 2017 Atlantic hurricane season was the costliest on record, killing more than 3,000 people and causing hundreds of billions of US dollars in damage. Damage in places like Texas and Puerto Rico may have grabbed the headlines, but SIDS also bore the brunt of the

Devastation caused by Hurricane Maria on the island of Dominica. 95 percent of homes were destroyed

SPECIAL FEATURE

Sea Level Change Projection

According to projections by NASA’s Sea Level Change Team, by the end of the century sea levels are expected to rise dramatically, endangering coastal settlements and changing ocean ecosystems. The degree of sea level rise correlates strongly with the rise in global temperatures. Under the most conservative (best-case) scenario, if temperatures are kept to 1.5°C, sea levels are projected to increase 0.44 m by the end of the century. The most extreme high-warming scenario (though one with low-confidence) has ocean levels increase up to 1.6 m by 2100.

1.6

Median/likely range 1.5˚C

Flood waters engulf houses and rice fields in Sakon Nakhon, Thailand

1.4

High Warming – Low Confidence

1.2

1.0

0.8

What causes the sea level to change? The average global sea level is influenced by three factors:

0.6

0.4

0.2

0 2020

2040

2060

2080

2100

Year

Ice melt Warmer temperatures cause Earth’s frozen freshwater in the form of glaciers found all over the world and ice sheets in Greenland and Antarctica to melt and flow into the ocean. The melting of land ice is the most significant contributor to rising ocean waters. Thermal expansion Water expands as it warms. A hotter ocean is a fuller ocean. Land water storage Groundwater pumped from non-recharging aquifers can eventually flow into the sea. On the opposite end, large dams prevent river water from finding its way into the ocean.

Source: NASA Sea Level Change Team

Of course, besides stronger hurricanes, SIDS face all the other types of climate- induced natural disasters that affect other places in the world including heatwaves and droughts. A game of dominoes The existential danger of sea level rise and the annual danger of hurricane season are hardly the only climate- related challenges small island nations have to deal with. They are sometimes the first dominoes that knock down subsequent dominoes. Flooding and coastal erosion are problems in and of themselves, but they also lead to infrastructure damage and changes in biodiversity. Fishing and tourism make up a good portion of the GDP of many SIDS, so damage to ports and other infrastructure risks toppling yet more dominoes. That is all the more likely if there is less money available to grow these industries because they are busy repairing damage just to get back to square one. Climate change disproportionally

affects SIDS, which often have the smallest leverage when it comes to mobilizing international support to help them prepare for long-term climate adaptation instead of just addressing the issues of the day. Yet, there is hope in terms of changing how the rest of the world views the unique problems SIDS face. In November 2023, UN Development Programme (UNDP) – the Maldives published a report titled “Loss and Damage Climate Litigation” which lays out a path for SIDS to advocate for better climate action. “This duality can trigger a pivotal shift in global climate discourse, positioning countries like the Maldives not as victims but as nations at the forefront of change,” wrote Kanni Wignaraja, UN Assistant Secretary-General and UNDP Regional Director for Asia and the Pacific and Enrico Gaveglia, UNDP Resident Representative in the Maldives in the report’s introduction. “Their struggles and resilience offer invaluable lessons and strategies, pushing for a world that listens, learns, and acts.”

Source: NASA Sea Level Change Team

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