Noting that development financing needs in the Caribbean are clearly not aligned with the current framework to access concessional finance, the President of the Caribbean Development Bank, Dr Hyginus ‘Gene’ Leon, proposed to use a forward-looking approach – CDB’s Recovery Duration Adjuster – to make more concessional funding available for Caribbean countries.
Speaking on innovative financing for recovery and sustainable development at Monday’s kickoff of the 5th Meeting of the Forum of the Countries of Latin America and the Caribbean on Sustainable Development 2022 in San José, Costa Rica, the CDB President stated: “Finance eligibility criteria and systems are often not suited to the unique challenges and constraints of small states. Given our vulnerabilities, it remains a fact that even when small states have achieved high levels of gross national income per capita, and graduated from access to concessional finance, they still face significant challenges after the occurrence of exogenous shocks, in particular natural hazard events.”
While modifications to the eligibility criteria have been tried, the existing vulnerability framework has not garnered consensus and still has many deficiencies, Dr. Leon highlighted. Existing vulnerability indices are backward looking in calibration and therefore unable to incorporate the evolution of vulnerability and forward-looking dynamics of the economies. To address the structural and vulnerability factors that constrain growth and development, as well as distinguish the magnitude and impacts of shocks, the CDB head proposed the use of the Recovery Duration Adjuster as a forward-looking concept that takes into account internal resilience capacity, which should underpin access to concessional finance.
Illustrating the diverse recovery duration of a developing country like Dominica compared to an advanced economy like the State of Florida in the United States after a Category Five hurricane hits, the Bank President showed that the magnitude of impact from such a shock differs significantly, as Dominica exhibits more deficient infrastructure, limited access to finance, lower levels of capital efficiencies, and limited institutional capacity.
Therefore, the duration of recovery for Dominica will be significantly longer than for Florida, which can access resources from the Federal Government in the US as the gross national income is an inadequate indicator for access to concessional finance after-shocks.
Dr Leon said: “We propose instead an internal resilience capacity-adjusted gross national income measure – the Recovery Duration Adjuster – that adjusts the gross national income on the basis of duration to recovery, which we believe is a more appropriate and equitable measure for use in classifying countries for access to concessional finance.”