A growing number of Small Island Developing States (SIDS) are experiencing debt distress due to high exposure to climate-related shocks. SIDS are having to borrow at high rates to recover from disasters, leaving them unable to invest in further development and climate resilience.

Many SIDS have limited access to concessional finance and must borrow on commercial terms. But with poor credit ratings, private debt is expensive.

Research conducted by the Resilient and Sustainable Island Initiative (RESI) finds that if ten SIDS issuing USD-denominated bonds from 2003–2023 had paid G7 rates, they would have saved $34-billion – equivalent to 78% of development assistance.

This policy brief outlines how reducing the cost of capital in SIDS can free up finance for climate resilience and ultimately reduce aid dependence. Measures needed to achieve this include a SIDS credit guarantee mechanism and strengthened debt negotiation capacity.

Download the briefing to read our seven recommended measures needed to reduce borrowing costs in SIDS. Ultimately, these changes would create space for sustainable investment in development and allow SIDS to take further climate action.

Report by the Overseas Development Institute