Small Island Developing States (SIDS) can look rich on paper while remaining highly vulnerable to shocks. As the OECD reviews the rules governing graduation from official development assistance (ODA), income per capita should not be the only test: countries’ structural vulnerability must count too.
This article was originally published by the Resilient and Sustainable Islands Initiative (RESI) at ODI Global in September 2026.
Over the next 10 years, 22 countries, half of which are SIDS, are projected to graduate from ODA eligibility as they cross the World Bank high-income country threshold for three years consecutively (currently $14,375 annual income per capita). The OECD DAC is conducting a welcome review of its graduation framework, which will look into additional metrics that could be used to determine their readiness to graduate from development assistance. However there is little consensus on which measures should replace – or complement – gross national income (GNI) per capita to ensure a fair outcome, particularly in the context of diminishing aid.
The Center for Global Development has argued that the current GNI per capita “Atlas” method should be replaced with GNI per capita adjusted for purchasing power parity (PPP) – so taking local prices into account – and a new income threshold of $25,000 or even $20,000 per capita set. They have also expressed concern that any changes to ODA graduation criteria to accommodate SIDS’ distinctive challenges ‘weaken decades of practice on global graduation rules and risk further diluting the DAC brand’. Rather, they argue, an exception should only be made for countries that have high aid dependence (they suggest an arbitrary threshold of ODA at 10% of GNI), as well as for humanitarian situations.
Behind this defence of income-based eligibility criteria is an unstated ‘gigantism’: the authors implicitly reproduce the notion that SIDS are collectively so small and insignificant that international processes should not be designed with their distinctive needs in mind.
What GNI and PPP miss about SIDS’ vulnerability
SIDS’ structural vulnerabilities call into question whether the very notion of income per capita is an appropriate measure of development.
At the Resilient and Sustainable Islands Initiative (RESI), we’ve long argued that GNI per capita is a deeply flawed metric when it comes to SIDS. The question is not whether SIDS can have a relatively high GNI per capita (some clearly do), but whether GNI per capita alone is an adequate measure of a country’s capacity to withstand often-devastating external shocks and sustain development gains. Tiny populations mean that high levels of income can dramatically overstate development levels and obscure poor income distribution. In all small countries, the sunk costs of statehood and development investments are much higher than in larger countries; and because of their size, a few wealthy individuals can easily skew per capita income levels.
SIDS’ small size also means that external shocks can generate losses on a relative scale that larger countries, however rich or poor, never have to contemplate. A single hurricane can destroy a small island nation’s entire infrastructure and wipe out years of development gains. Hurricane Maria caused damage equivalent to 226% of Dominica’s GDP in 2017, and last year Hurricane Melissa causing an estimated $12.2 billion in loss and damage in Jamaica, equivalent to around 57% of GDP. GNI per capita does not fully capture this destruction of capital or the disproportionate costs of recovery and adaptation, especially the fiscal burden for the government, which may not be fully reflected in GNI per capita in subsequent years unless the disaster is large enough to generate economy-wide effects. Graduating SIDS when they reach this threshold also ignores the fact higher financing costs in SIDS can lead to enormous debt burdens which act as a sustained drag on growth.
Shifting to PPP doesn’t fully resolve the problem either: standardised price baskets (like those used by the ICP for PPP calculations) are unlikely to reflect the higher costs faced by islands because of their particular supply-chain constraints, and infrequent international price surveys won’t capture conditions such as severe price premiums, transportation cost and lower income levels in remote outer islands. SIDS have structural vulnerabilities that make them highly exposed to climate hazards, with economies that are highly concentrated and constrained by a very small domestic economic and fiscal base. None of those structural vulnerabilities disappear because an average income statistic moves above an administrative cutoff.
A ‘GNI-plus’ approach to ODA graduation
The point is not that all SIDS should remain permanently eligible for ODA. In our recent paper on ODA graduation reform, we show how some SIDS reaching the income threshold could be moved into a 10-year ‘transition pathway’ using what we call a ‘GNI-plus’ framework based on income per capita plus multidimensional vulnerability scores. This would help to reduce the fiscal disruption associated with an abrupt withdrawal of ODA and support countries to adjust gradually. There is also a strong case for a ‘climate exception’ for SIDS in view of their disproportionate exposure to climate risks. This would involve decoupling climate finance from broader ODA, with SIDS remaining eligible for the former, but not necessarily the latter after graduation threshold is breached.
Rather than pushing aside concerns about the GNI per capita measure, the DAC should consider how vulnerability should be reflected in graduation decisions as well as the income threshold and transition periods.
The UN’s Multidimensional Vulnerability Index (MVI) offers one way to do this. It provides a tool that measures structural vulnerability to economic, environmental, and social shocks. The MVI does not discard income, reward vulnerability indiscriminately, or ignore countries’ putative ‘strengths’. It is not a perfect measure – no composite index ever could be. But it is the only vulnerability index that has achieved universal assent via the UN General Assembly. The recent establishment of an MVI Expert Panel to move the process forward is a significant moment, and it is incumbent on the international community to take the MVI seriously and consider its use as a complementary measure to GNI per capita.
The ODA graduation review is an opportunity to move beyond a system in which income per capita is the sole formal criterion for graduation. A credible graduation framework should also account for the structural vulnerabilities that shape countries’ ability to absorb external shocks and sustain development gains. Otherwise, we risk leaving many countries behind.
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