‘A differentiated approach must be given towards SIDS, taking into account their great vulnerabilities to external economic and environmental shocks as well as their great dependence on tourism, a sector devastated by the global pandemic.’

– Mr. José Ulisses Correia e Silva, Prime Minister of Cabo Verde at the United Nations General Assembly New York, 26 September 2020

Year 2020 was unusually bleak from the economic point of view. SIDS1’ challenges due to the intensifying impacts of climate change and natural disasters were magnified by the economic impacts of the COVID-19 pandemic.

Many SIDS have developed a service economy around the ocean resources, tourism and business services. The collapse of tourism combined with high levels of external debt are threatening livelihoods in many SIDS, including their capacity to achieve the 2030 Agenda for Sustainable Development.

This chapter will discuss SIDS’ economy, including:

  1. Economic trends by sector and vulnerabilities reflected by the volatility of GDP and the current account deficit.
  2. Sustainable industrialisation and efforts to diversify economic activities and increase the share of high-tech manufactures.
  3. Productive capacities that build on SIDS’ human capital and enable higher economic growth and an increasing focus on service activities.
  4. Debt and financial risk related to the increasing indebtedness and the role of remittances, official development assistance and foreign direct investment for SIDS’ economies.
  1. Aggregates for SIDS and SIDS regions in this chapter refer to the analytical SIDS grouping, as detailed in What makes a SIDS a SIDS, unless otherwise specified.