Fiscal positions in small states, those with a population of 1.5 million or less, have deteriorated significantly over the past decade. The COVID-19 pandemic and subsequent global shocks have worsened fiscal and debt positions in small states, intensifying their existing fiscal vulnerabilities. Forty percent (14) of the 35 emerging market and developing economies (EMDEs) that are small states are at high risk of debt distress or already experiencing it, roughly twice the share for other EMDEs.
Despite recent fiscal consolidation efforts that have helped narrow deficits in some cases, the precarious fiscal positions of many small states pose increased risks to fiscal sustainability. These risks are likely to be exacerbated by a projected slowdown in growth for these countries this year and next. […]