By Philip Kenworthy, Patrick Kirby, Dana Vorisek
Small states—countries with a population of 1.5 million or less—were hit particularly hard by the COVID-19 pandemic. They’ve also had a much slower recovery than other emerging market and developing economies (EMDEs). Small states have several features that make them especially vulnerable to global economic and climate-related developments. To make matters more difficult, these countries have fewer policy tools at their disposal than larger countries.
A deep contraction during the pandemic, and a prolonged recovery
Small states are forecast to grow 3.5 percent in 2023, slowing from an estimated 5.2 percent in 2022. At the projected pace of growth, small states will regain their aggregate 2019 level of activity only this year, while other EMDEs exceeded this threshold in 2021 (Figure 1). Small states face long-term economic damage related to the shocks of the previous three years, including skills and education losses, a lower capital stock, and damage from the protracted downturn of tourism.
Figure 1. GDP compared to pre-pandemic levels
Source: World Bank.
Note: Sample includes 34 EMDE small states (excluding Guyana), 115 EMDEs excluding small states, and 37…