Financing for development post-COVID-19: Part 1

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Dr Jimmy Fletcher Managing Director, Soloricon

By Dr James Fletcher

In part one of ‘Our Inflection Point: Creating a New Saint Lucia post-COVID-19’ the first and second articles in this series will look at a few macro issues before we get into some country-specific proposals.

A major challenge of the government as it looks to restart the economy following the COVID-19 shutdown will be to secure suitable finance for re-prioritized activities. One avenue that must be explored is the re-purposing of some of the existing loans for projects that are no longer deemed essential post-COVID-19.

While in ordinary times this is a very difficult, onerous, and costly exercise, these are not ordinary times. Saint Lucia and the world have just experienced a force majeure of unprecedented magnitude. Many of the assumptions that justified these loans pre-COVID-19 are no longer valid or accurate. It is imperative that the government revisits all such agreements and seek to repurpose loans for non-essential projects so that the funds can now be used to finance essential post-COVID-19 support and development.

The government should lobby the international community to encourage it to create a new part-grant, part highly-concessional funding facility to assist developing countries and Small Island Developing States (SIDS) to stabilize and revive their economies, generate employment and put their countries back on a path that will allow them to meet the now more difficult-to-attain targets of the Sustainable Development Goals (SDGs).

COVID-19 has thrown the 2030 Development Agenda completely off course for many countries, chief among which are SIDS like Saint Lucia. If we are to remain committed to achieving the seventeen sustainable development goals, a post-COVID-19 SDG fund should be created to assist developing countries and SIDS. This post-COVID-19 SDG fund should be contributed to by public finance from developed countries, private sector finance, and international philanthropy.

Quick access to international funds

Gaining quick access to international funding mechanisms has always been a major challenge for SIDS and least developed countries (LDCs). This is why the uptake of funds of SIDS and LDCs from instruments such as the Green Climate Fund has been so low, despite the plethora of climate action interventions that are needed in these countries. Therefore, strong representation must be made to these international funding mechanisms to provide quick access to SIDS and LDCs to the funds that will be required to stimulate economic activity and develop resilience to climate change and other exogenous shocks. The period from project submission to approval should last no more than six months.

At the SIDS Member State level, the appropriate units should be established dedicated to developing project proposals for submission to bilateral and multilateral funding agencies and development partners. In the case of the government of Saint Lucia, a dedicated project unit should be immediately established in the ministry of planning, with sole responsibility for project planning, preparation, monitoring, and evaluation.

The thorny issue of income classification of countries must be addressed and resolved. It is unfair and inaccurate to determine a country’s development status and its qualification for concessional financing based on its GDP-per-capita. Under the current metric, Saint Lucia is classified as an ‘upper-middle-income economy’.

This metric does not take into consideration levels of social inequality in the country, which may be causing large segments of the population to be poor or vulnerable even while the GDP-per-capita figures paint a more flattering picture.

Also, as we have seen with the passage of major hurricanes in almost every Caribbean island and as we will undoubtedly notice after the economic carnage of COVID-19 has been assessed. GDP-per-capita does not factor the innate vulnerabilities of these countries to things like proneness to natural disasters, the dependence of the country on key imports, particularly food and fuel, and the (lack of) diversification of the economy and its export base.

These vulnerabilities leave countries like Saint Lucia highly susceptible to exogenous shocks and undermine the alleged good health of the country’s economy that is suggested by its GDP-per-capita ranking. The international community must adopt a more accurate indicator of development that takes into account a combination of productive output, social inequality, and economic vulnerability.

This new metric is what should be used to determine a country’s qualification for grant and concessional finance resources. This is an opportunity for the Caribbean’s premier learning institution, The University of the West Indies, to lead the charge in the articulation of this new development metric.

The countries of the Caribbean, which are all affected to varying degrees by this problem of inaccurate classification, must present a stronger lobby to the international financial institutions on this subject and the international response to the COVID-19 economic fallout provides an opportune moment for this to take place.

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