The Case for a Globally Accepted Vulnerability Index
Between unsustainable debt levels and global supply chain disruptions, developing countries across the world are facing multifaceted challenges in the wake of the Covid-19 pandemic. A new, data-driven index from the United Nations, the multidimensional vulnerability index (MVI), seeks to increase eligibility for small island developing states (SIDS) to receive greater financing to address their unique vulnerabilities—namely, their proximity and reliance to the ocean and climate change. If gross national income (GNI) alone continues to determine official development assistance (ODA) amounts and graduation levels, then select SIDS are likely to lose out on critical development financing. Now is the time for the MVI to be accepted and implemented across the multilateral system as not only an acknowledgement of the unique vulnerabilities of SIDS, but an assurance of their future social, environmental, and economic stability.
SIDS rely on the ocean for their economies, while enduring the effects of an increasingly warming climate. Many of the SIDS are also highly susceptible to natural disasters; according to the Organization for Economic Cooperation and Development (OECD), SIDS “make up two thirds of the countries that suffer the highest relative losses—between 1% and 9% of their GDP each year—from natural disasters and are acutely vulnerable to the impacts of climate change.” For example, in 2017, Hurricane Maria hit Dominica, resulting in a physical damage of 225 percent of its GDP. Tourism accounts for up to 50 percent of GDP and 30 percent of total employment in these countries. Due to their high dependence on the tourism sector, the Maldives and the Seychelles are projected to have a 16 percent drop in GDP following the 25 percent fall in tourism due to the Covid-19 pandemic. Additionally, 50 percent of SIDS import more than 80 percent of their food. Finally, the debt-to-GDP ratios of SIDS ranged from 25 percent to 96 percent in 2020, at an average of 48 percent; they also have different debt compositions (private versus official). Those high levels of debt are unsustainable and will inhibit economic growth if not seriously addressed.
Most SIDS that are ODA-eligible are currently upper middle-income countries (UMIC), though there have been several SIDS that have graduated to high-income status (meaning they lose access to ODA). A study commissioned by the UK Department for International Development found that “graduation does pose challenges for SIDS” and “it is not clear that graduation processes are well handled by both domestic governments and development agencies.” UMIC SIDS face high debt levels because of their susceptibility towards natural disasters and external economic shocks, as well as the nature of their economies. In the case of Palau, the country “graduated” from ODA assistance, only to require it again six months later. Other graduating SIDS have found themselves in the same situation.
For the last three decades, SIDS have called for the creation of a globally accepted vulnerability index to solve for the integration of criteria beyond GNI for ODA and graduation. The first mention of a vulnerability index was in 1994, and several strides have been made since then, including the recent SAMOA Pathway in 2014. This created a roadmap for the creation of the MVI. Today’s version of the MVI was a culmination of years of work and advocacy from SIDS. A year ago, a study titled “The Decade of Action and Small Island Developing States—Measuring and Addressing SIDS Vulnerabilities to Accelerate SDG Progress” was published, providing a clear outline of the MVI. The MVI seeks to “help SIDS gain 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 waters rise.” The MVI measures economic, structural development, and environmental vulnerabilities through 18 indicators in three different categories. This could be a game changer for SIDS, as it aims to capture the previously unconsidered nuances for their complex set of development challenges.
Yet the MVI has not received the traction it deserves until now. The United Nations’ 12-member High Level Panel of the MVI began its work in February 2022 to review literature related to the index, provide recommendations on the key components and indicators of the index, and finalize the MVI by 2022. UN adoption would pave the way for international financial institutions (IFIs) to consider improved integration of vulnerability in eligibility processes, with the MVI offering a possible methodology.
The question is, why is now the best time for the UN adoption of the MVI? Covid-19 and climate change are the best arguments for the timing given the disproportionate yet often undiscussed impacts that SIDS are still facing. While SIDS are not as affected as other countries in terms of Covid-19 cases and deaths, they are still are among the worst hit countries economically. The data also paints a stark contrast between SIDS and the rest of the developing world. In a study published in July 2021, the global average MVI score was calculated to be 22.1, while the scores for SIDS are 50-70 percent higher: 37.6 for SIDS in the Pacific, 34.80 in the Atlantic, Indian Ocean and South China Seas (AIS), and 33.72 in the Caribbean. It’s simple: the higher the MVI score, the slower the progress on the SDGs. The 2030 deadline for achieving the 17 Sustainable Development Goals is closer than it appears, and significant progress should be made, especially on SDG 14: Life Below Water.
The climate crisis continues to worsen, directly impacting the livelihoods of not only the SIDS’ populations but the vast biodiversity of the ocean. The MVI offers a paradigm shift in how the United Nations and development financiers decide what countries receive foreign assistance Instead of assistance decisions being primarily about GNI, the MVI would invite donors to think broadly about the social, economic, and environmental characteristics of small island states and provide support accordingly.
So, what should be done? First, the work of the high-level panel seems promising and is the right step forward. More discussions among the SIDS with other UN member states will be crucial to increase understanding and buy-in of the MVI, especially for states which are considered less vulnerable. Making the case for the MVI to be used across the UN system, the multilateral development banks, and development financial institutions will take time but will be essential for the vitality of the index. Creating an easily understandable and accessible guide to the index, the methodology, and other resources will make it more palatable for policymakers and implementers alike to use the index. The more complicated process will be encouraging donor countries to make financial decisions based on the index’s findings, which could take some time. Those involved should be cautious about the communication of the index and be prepared to engage in a strong communications campaign about the value of its adoption if this work is to shift from words on a page cared for by few to a global paradigm shift that can transform the lives of many.
For SIDS, the greater access to concessional financing is needed to prevent additional future crises that could potentially lead to conflict or protracted fragility contexts. Beyond SIDS, the benefits of having the MVI as an evidence base for decisionmaking for developed countries, in addition to donors, IFI stakeholders, development partners, should be underscored. Economic diversification, debt repayment and restructuring, and constructing the “blue economy” will all take time and money. The effects of climate change and the inherent environmental vulnerabilities of SIDS cannot be stressed enough. The MVI will aim to encapsulate these nuances, hopefully opening a broader conversation about the usage of ODA going forward.
Shannon McKeown is a research assistant with the Project on Prosperity and Development at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Bridi Rice is a Fulbright visiting scholar with the CSIS Project on Prosperity and Development.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2022 by the Center for Strategic and International Studies. All rights reserved.