COVID-19: Isle of Man Response and Issues for the Future for Small States

“There are decades where nothing happens, and there are weeks where decades happen.” Vladimir Lenin

The inner harbor at Port St. Mary on the southeast coast of the Isle of Man. April 29, 2020. Tim Cullen

How have the Isle of Man and other small states responded to these recent weeks of COVID-19?

The Isle of Man is an island of around eighty-five thousand people and 227 square miles, located in the Irish Sea roughly midway between England, Scotland, and Ireland. It is a Crown dependency, not part of the United Kingdom; rather, it is a self-governing possession of the British Crown, responsible for all its own taxation, spending, and policy decisions, with the United Kingdom responsible only for its defense, international relations, and overall “good government”.

It has a diverse economy, spanning banking, insurance, trust and fiduciary services, e-gaming, media, manufacturing, food and drink production, and tourism. In the last thirty-five years, it has only had one year without positive economic growth.  

It is also home to the Small Countries Financial Management Centre (SCFMC), a charity set up in 2009 whose purpose is to contribute to the growth and prosperity of small developing countries through capacity-building at the senior official level in the government financial sector. The SCFMC achieves this through the provision of targeted executive education programs conducted by practitioners and academics to improve skills, deepen understanding, and impart best practices around financial regulation, risk management, and broader management of government financial activities. 

The SCFMC assumes all the costs of their programs, including travel and accommodation for participants. Since its inception, 267 senior officials from thirty-one small countries have participated in its annual Small Countries Financial Management Program. The SCFMC receives the majority of its funding through the government of the Isle of Man’s development aid budget. As with the rest of the world, the COVID-19 pandemic has brought the most extreme challenge to the government and community of the Isle of Man.

Initially, the government’s first priority was preserving human life. Its initial strategy prioritized this, along with maintaining crucial national infrastructure, maintaining  public safety and confidence, and supporting a controlled return to normality. 

Whilst hindsight might suggest the actions associated with the “stay at home” stage—particularly relating to the closing of the Island’s borders on March 25—might have been implemented a little earlier, the raft of measures taken by the government has succeeded in limiting the spread of the virus on the Island.

However, the Island has seen unemployment rise dramatically from 850 to 1,341 (a 3.1 percent unemployment rate) between March and April, with further increase seen as inevitable in the forthcoming months. 

To mitigate the impact of its lockdown measures on both individuals and business, the government introduced a range of measures estimated to cost 100 million pounds for the first twelve weeks’ support, to be drawn from reserves built up over the last forty years.

The ability of island states to “pull up the drawbridge” and close borders more easily than elsewhere can be advantageous in the initial phase. But coming out of that phase to reintroduce local economic activity and, crucially, to attract new business opportunities to supplement or replace those damaged by the lockdown is the most difficult of policy judgements.

As with all other small states, the Island is also concerned with actions necessary to position its economy to survive and prosper in the “new normal”.

The responses of the small countries which have participated in the SCFMC’s annual programs, whilst varying in detail, have been broadly similar to the Isle of Man and indeed most responsible countries, with declarations of emergency powers; social distancing; border closures and quarantine periods of at least fourteen days; lockdown or curfews of varying restrictiveness and duration; closure of schools and shops with varying severity; restrictions on social gatherings and home-working where possible. Many have introduced fines of varying levels—some draconian—for regulation breaches.

Some SCFMC countries—particularly those in the Pacific such as Samoa, Vanuatu, the Solomon Islands, Tonga, Tuvalu, and the Cook Islands—have no confirmed COVID-19 cases, although the economic impacts are being felt severely, particularly with the collapse of tourism and reduced remittances. For example, in Samoa, tourism is reported to provide 12 percent of employment and poverty has “surged”.

Many other SCFMC countries’ economies, including those in the Caribbean, are also highly tourist-dependent and are suffering severe economic strain. With tourism closed, their governments face exceptionally challenging times with revenues having plummeted even as COVID-19-related expenditures have increased dramatically.  

Timothy Antoine, Governor of the Eastern Caribbean Central Bank (ECCB) and a SCFMC alumnus, recently suggested that the ECCB’s COVID-19 impact scenarios had projected economic activity in the Eastern Caribbean Currency Union (ECCU) area to contract between 5 percent and 7percent (in real terms) in 2020, accompanied by a sharp rise in unemployment. This is compared to a pre-pandemic economic growth projection of 3.3 percent.

In response to these economic pressures, most small countries have assembled relief packages for businesses and individuals. For example, Samoa passed a $23.6 million relief package to help the country’s hotel sector, which had been forced to lay off five hundred hotel workers. 

The Bretton Woods organizations have been called upon for assistance. For example, the International Monetary Fund has provided emergency financing relief from its Rapid Credit Facility (RCF) to seven SCFMC countries, ranging from $14 million to Dominica to $31.23 million to the Seychelles.

Nevertheless, as in the words of Governor Antoine, we move from “saving lives to saving livelihoods and economies”. There are some key areas that the Isle of Man, along with all other small island states, need to address and resolve quickly.

Opening up after lockdown will not simply lead to previous economic activity returning. For example, countries dependent on tourism will find it very challenging, both in terms of building confidence in prospective visitors and in the resident population’s willingness to accept the risks of reintroduction of the virus.  

The international environment for small countries will be harsher than ever before. Larger countries will be more inward-looking, and protectionism will be brought to the fore. All countries will be even more merciless in protecting existing business and attracting new business.  

The interests of and impact on smaller countries will be of even less interest to larger countries than previously, and there will be early and intense pressure exerted in taxation and regulatory areas with little or no regard paid to assisting smaller nations in developing alternative economic opportunities.

Taxation and regulatory regimes will need to be redesigned to withstand international criticism whilst remaining internationally competitive. 

The maintenance and development of a business environment conducive to the attraction of new business will be of fundamental importance, as will the abilities of small countries’ governments to be flexible, swift acting and focused in delivering such environments.  

This will involve governments addressing rigorously, both at the political and official levels, how they think and act, and balance the needs and aspirations of their populations with those of the businesses they need to retain and attract.

Rather than looking backwards at recreating the “old normal”, the focus needs to be on turning previous negatives into positives in the “new normal”. An example could be an application of the thinking espoused by two New Zealand scientists, Matt Boyd and Nick Wilson, who posit that, in the post-pandemic climate, reframing a country’s isolation into the ability to protect itself from future pandemics can turn a historic disadvantage into a unique selling point.

In reopening economies whilst learning to live with COVID-19, Governor Antoine recently identified four key areas on which to focus. Expanding connectivity to connect the unconnected; adopting a growth mindset to help policymakers learn from problems and reframe them as opportunities; identifying essential and nonessential spending and focusing on needs, not wants; and supporting regional solidarity. On the last point, Governor Antoine pronounced: “Because many large countries are so preoccupied with their own issues, they do not have too much time for small states like us. So, we have to take care of our own business. And an important part of that is standing together, sticking together in this moment of adversity; regional solidarity is crucial.”

The attitude of international organizations and the ability of small nations to band together to ensure their collective voice and needs are heard, understood, and addressed will be crucial.Albert Einstein once said, “In the midst of every crisis lies great opportunity.” For the Isle of Man and all other small countries, the focus—extremely difficult, but vital—must be on identifying and acting upon such opportunities.

Mark Shimmin MBE is the Executive Director of the Small Countries Financial Management Centre. Prior to taking up that role in 2014, he had served over 10 years as the Chief Financial Officer (equivalent of Permanent Secretary) in the Isle of Man Treasury, the Government department responsible for direct and indirect taxation, economic affairs, financial services promotion, and Information Technology. 

This article was written as part of the Addressing Global Crisis Project (AGC), which is run by the University of Central Florida’s Office of Global Perspectives & International Initiatives (GPII). AGC examines how governments, individually and collectively, deal with pandemics, natural disasters, ecological challenges, and climate change. AGC is organized around five primary pillars: (1) delivery of services and infrastructure; (2) water-energy-food security; (2) governance and politics; (4) economic development; and, (5) national security. Through its global network, AGC facilitates expert discussion and features articles, publications and online content.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Small Countries Financial Management Centre.

Since the article was written in mid-April there have been only four more coronavirus infections. In recent weeks there have been no new infections or deaths on the Isle of Man.  Borders remain closed except for returning residents, who must quarantine, but most other restrictions have been lifted, albeit it with social distancing still required.