By: Kimberly Ramkhalawan
June 17, 2022
The Caribbean Development Bank (CDB) says it will now include an “Internal Resistance Framework (IRA) into its heavily touted Recovery Duration Adjuster, RDA as part of its plan to promote access concessional finance to its Borrowing Member Countries, BMCs.
While the RDA is a measurement framework which considers the inputs in determining the extent of a country’s vulnerability to exogenous shocks against the a resilience-adjusted Gross National Income (GNI) measure for Small Island Developing States (SIDS) in order to access concessional finance, the newest framework seeks to ensure return on investments are made to the country’s holistic development.
The changes were dissected as part of the 52nd Annual Meeting hosted by the CDB, during one of it sessions titled ‘Measuring Vulnerability and Resilience for Small States: The Recovery Duration Adjuster’. Jason Cotton, Economist at the CDB shared that introducing the multi-dimensional vulnerability index is the framework being proposed by the international community to either replace or be used with the gross national income, GNI, to determine the access to concessional financing.
However, he believes this will strengthen the RDA, as the multi-dimensional vulnerability index, MVI, incorporates both vulnerability and resilience in the framework. The CDB has recently introduced the RDA as a means of providing developmental financing all while building its capacity in other areas, particularly within developing countries and small island developing states, SIDS, all aimed at ensuring sustainable development at the BMC level.
The changes utilizing the MVI comes with the need for an adequate financing system to assist countries in achieving their development options.
Cotton says “while the MVI is an improvement to the GNI which is the current system which allows access to concessional financing, it does not go far enough in capturing the realities of SIDS. RDA has been designed to make MVI better by incorporating not only the dimensions or the vulnerability or susceptibility of a country but also the critical aspect of resilience building”.
He adds that ‘the structural deficiencies of our region can be attributed to its inadequacies to resilience building,’ and ‘any concept that seeks to give a sense of development must incorporate being holistic’.
A key observation Cotton says it that the new methodology to be implemented goes beyond the susceptibility of shock, all while considering how the country builds resilience and bounces back from the shock. He added that it was something in their research where regional nations and countries abroad were being struck by ‘decimating their capital stock, wiping out their productivity and in turn, ended up putting a strain on their development’.
Ian Durant, Director of Economics at the CDB says while there is the importance of countries being graduated in the full view of existential challenges to have access to concessional financing, there must be returns on the financing investment in the form of higher growth and less vulnerability.
Dr. Keith Nurse, UN Economic and Social Council shared that having strong methodological capabilities to enhance measurement allows better targeting, and planning to implement. He said challenges for small states are often found in what he termed the ‘implementation deficit disorder’, which is no shortage of plans but its capacity to implement often getting compromised, citing a range of reasons’.
Dr. Nurse described the RDA concept as ‘nuanced in looking at the internal resilience capacity’, and went on to say that for a long time for small states have had to deal with inherent vulnerabilities such as hurricanes. However, he added that there must be some preparedness happening on governments’ part. Using the term ‘Courted vulnerabilities’, he described where states fail to prepare for the risks , they were instead courting vulnerabilities, a practice the Caribbean is already engaged in through high debt to GDP rates, high food import bills where it is not moving fast enough to invest in agriculture to feed itself or investing in renewables in light of soaring energy prices.
He says the addition of the IRF, gives a new way of thinking and responding to the level of exposure and risk countries have, by being forward looking, using planning frameworks that mitigate these exposures and risks.
At the UN, Dr.Nurse says apart from using the GNI, the Human Asset index which considers education, health and social factors, as well as the environmental vulnerability index, EVI, countries that were once branded as least developed countries, were graduating once two of the main criteria were met. This applies to even mono-structural economies, who have taken its revenue and diverted it to other areas of development such as education and health. He commended the CDB for playing as a champion, pushing the start thinking process about how to ensure these countries can bounce back better, through a process of innovation.
Professor Eric Strobl, from the University of Bern in Switzerland provided some insight as to how this type of financing has worked in other parts of the world, and impact on economies.
He says high frequency data often shows Gross National Product or Gross Domestic Product, investment goes up at start, with an initial drop occurring one year after financing in systems that do not take into consideration Internal Shocks. Strobl shared that when economies use the expenditure to invest in infrastructure in rebuilding resilience, it often results in generations paying for it later on with the cycle of recovery and impacts on the expenditure to be undertaken.
Despite this, he says the GNI has often failed in providing financing to countries when it is most needed.
To Cotton, financing utilizing the RDA and the MVI together can be seen as giving a deeper diagnosis, as opposed to what have been the policy prescriptions the country has done in order to strengthen its ability to withstand a shock.