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The OPEC Fund
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  1. News
  2. When small is vulnerable
April 18, 2025
By Axel Reiserer, OPEC Fund

When small is vulnerable

The OPEC Fund is launching a series of initiatives to address the multiple challenges faced by Small Island Developing States

2025_OFQ2 Maldives underwater meeting.jpg

Climate change will affect every country on earth, but not all in the same way. For some it is already a question of survival. On October 17, 2009, the President of the Maldives convened a meeting of his cabinet around 5 meters underwater: “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,” Mohamed Nasheed said. 

The United Nations has 39 countries on its list of Small Island Developing States (SIDS). They are located in the Caribbean, the Pacific and the Atlantic, Indian Ocean and South China Sea and host a vast range of unique and diverse ecosystems. The ocean under their control is 28 times the size of their combined land mass. The aggregate population of all SIDS is 65 million, slightly less than 1 per cent of the world’s population, spread across more than 1,000 islands. 

As early as 1992 SIDS were recognized as a special case by the UN Conference on Environment and Development (known as the “Earth Summit”) in Rio de Janeiro. Even though small islands are responsible for less than 1 percent of global greenhouse gas emissions, the Rio declaration “Agenda 21” warned: “They are considered extremely vulnerable to global warming and sea-level rise, with certain small low-lying islands facing the increasing threat of the loss of their entire national territories.” 

While vanishing under the waves would be the extreme outcome of climate change, many SIDS are already witnessing the growing impacts of tropical cyclones, storm surges, sea level rise, as well as droughts, coral bleaching and invasive species, according to the Intergovernmental Panel on Climate Change (IPCC). As a consequence, “climate change is affecting settlements and infrastructure, health and well-being, water and food security and economies,” the experts warned. 

The damage to the economy is hitting SIDS particularly hard as many are in a fragile position following the COVID-19 pandemic, which exacerbated structural weaknesses such as lack of resources and exposed vulnerabilities such as insufficient diversification. The high dependency on tourism proved to be costly: International arrivals in SIDS declined by 76 percent in 2020 and 72 percent in 2021, according to the World Tourism Organization. Approximately US$90 billion were lost in tourism revenues from 2020 to 2022, the UN agency reported. The combined GDP of all 29 SIDS was less than US$575 billion before the pandemic. 

While tourism has bounced back globally following the end of the pandemic, the exposure to external shocks was again felt painfully in SIDS following Russia’s full-scale invasion of Ukraine in February 2022. The war led to a worldwide spike in energy and food prices, record inflation, weak growth and high uncertainty. Concerns about economic viability saw the share of private remittances to SIDS grow further in comparison to non-concessional finance such as foreign direct investment. The financing needs of SIDS are generally perceived as too small, yet also too risky and they are thought to lack capacity to manage large investments, the Organisation for Economic Co-operation and Development (OECD) warns. 

The attractiveness of SIDS among investors is further impacted by the partly high level of debt, which – despite significant variation – is on average higher than for other developing countries. Many SIDS were already showing signs of increased debt distress prior to COVID-19 and the pandemic has only increased the pressure. High debt levels and servicing costs, combined with competing budgetary priorities and limited access to concessional finance are restricting the ability of SIDS to invest in climate resilience. 

The OPEC Fund is addressing the challenges facing SIDS with a multipronged strategy that combines financing with capacity building and mobilizing external funding by leveraging the institution’s engagement. The OPEC Fund Island Resilience Facility will be launched globally in early May 2025 during a SIDS Summit in Vienna. It will be accompanied by a dedicated OPEC Fund SIDS Strategy. These documents serve as the cornerstones of the OPEC Fund’s engagement in the field. 

The OPEC Fund Island Resilience Facility builds on the institution’s longstanding engagement with SIDS and serves as a launchpad for a broader, multi-regional initiative. The facility channels needs-based climate financing to SIDS, with each project customized to local conditions but guided by a regional perspective. It allows the OPEC Fund to provide (a) tailored technical assistance, (b) preparation funds, (c) capacity building and (d) traditional and innovative financing for bankable projects and programs. 

The OPEC Fund Climate Resilience Facility was established to provide bespoke technical assistance and grant-based financing to strengthen SIDS’ resilience. The institution sees great potential in green and digital solutions. While the facility works closely with local partners to strengthen their capabilities and skills in developing proposals to build a robust project pipeline, it also aims at scaling up resource mobilization by engaging partners such as the Arab Coordination Group (ACG). 

The global rollout of the facility will take into account lessons learned from a first pilot phase in 2024 when partnerships were established and formalized with the Organisation of Eastern Caribbean States (OECS) and the Pacific Islands Forum Secretariat (PIFS), two partners of the UNFCCC. This cooperation has helped to enhance skills in crafting project proposals, building climate-resilient infrastructure, fostering knowledge sharing, mobilizing funding and promoting regional cooperation. 

As a next step, the OPEC Fund Island Resilience Facility will scale up these efforts, widen participation and bolster infrastructure to create a robust project pipeline that dovetails with the institution’s wider SIDS Strategy. The goal is to facilitate SIDS’ access to concessional funding and technical assistance grants to address their needs. The SIDS Strategy will be implemented gradually over the period 2025-27 and fully expanded with a total allocation of US$450 million over this three-year period. 

As a global development finance institution servicing the Global South the OPEC Fund has a long-standing engagement with SIDS. To date, about US$2 billion have been committed to projects across some 25 island nations in the Caribbean, Pacific, Atlantic and Indian Oceans. Loans have supported, among others, projects in transport (ports and harbors), energy (renewables and grids), water & sanitation, health and education. 

The SIDS Summit in early May 2025 will provide an opportunity to bring the two strands of the OPEC Fund’s approach together with the goal of maximizing impact and delivering concrete outcomes: The first day will be dedicated to high-level policy-making and financial institutions, while the second day will be held as a workshop to enhance the technical capacity for the robust and swift design of bankable and sustainable projects. 

Time is pressing and expectations are high. Khadeeja Naseem, the former Minister of State for Environment, Climate Change and Technology of the Maldives, told this magazine a year ago: “I think it’s good for countries to band together and make their demands towards international institutions. Development agencies need to ensure that the most vulnerable countries get access to concessional finance, noting the fact that many developing countries are already in debt and that increasing debt is unsustainable. This is something that needs to be dealt with in the broader international financial system, because the status quo is simply not sustainable.” 

The OPEC Fund and Jamaica 

To date, the OPEC Fund has approved 24 public and private sector loans totaling US$235.6 million in Jamaica. The OPEC Fund has also provided US$210,000 for two national grants supporting capacity building and elder care. 

Project example - The Primary Education Support Project was signed in 2001 for the renovation of local schools and for strengthening local capacity in school administration, management and planning. The OPEC Fund contributed US$4 million to an upgrade of the curricula, the development of new learning materials and the introduction of professional development schemes for teachers.  

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April 18, 2025
By Axel Reiserer, OPEC Fund
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