Conservationists claim that the solution may lie with a financial tool called “debt-for-environment swaps,” which would allow developing countries to address all three issues at once. Many developing countries are currently facing a triple whammy of rising debt loads, climate change, and nature loss.
The World Bank said in December that the $62 billion in yearly debt service paid by the world’s poorest nations represents a 35% year-over-year increase in default risk.
To fulfil their international and domestic commitments, nations must urgently increase their investments in climate and biodiversity conservation even as their debt loads increase.
Portugal and Cape Verde reached an agreement for a “debt-for-nature” swap last month in an effort to address these issues globally, just days after Zambia announced that it was also considering a similar idea from the environmental organisation WWF. The island nation of Cape Verde, a former colony of Portugal, is located off the coast of West Africa and is threatened by coastal erosion and sea level rise. It owes Portugal roughly 140 million euros ($152 million) in addition to more than 400 million euros to banks and other organisations.
An initial 12 million euros of scheduled debt repayments would be transferred to an environmental and climate fund as part of the debt-for-nature deal struck with Portugal in order to support Cape Verde’s transition to cleaner energy sources and combat climate change.
The debt-for-nature plan for Zambia, which is home to sizable national parks where some of Africa’s most remarkable wild species reside or migrate, intends to allocate $750 million to $1 billion to conservation initiatives.
The second-largest coral reef in the world was protected by a $553 million swap for Belize in 2021, while a $22 million debt restructuring arrangement with the Seychelles saw the government agree to safeguard 30% of its waters in return for a $22 million debt reduction.
These forms of debt exchange are expected to proliferate in the future years, economists predict — with Ecuador and Sri Lanka also allegedly investigating similar deals.
Here are some details regarding debt-for-environment swaps and the expanding government, conservationist, and investor support for them:
With bilateral government lenders, development finance organizations, or commercial banks, debt swaps are one approach to alter the conditions of a country’s borrowing. These swaps can provide nations additional time to repay loans or lower interest rates and the sums they must pay back.
Debt swaps, if approved by creditors, can prevent default for low-income nations around the world and allow them to reinvest some of their debt repayments in initiatives to combat climate change, nature protection, poor health, or inadequate education.
By providing extra assurances, debt swaps can lower the risk for creditors and assure that at least a portion of a loan will eventually be returned. In the middle of the 1980s, largely in Latin America, the first debt-for-nature swaps were reached, with wealthy nations serving as the primary creditors.
With support from religious and political leaders, as well as artists like Bono of U2, the Jubilee 2000 movement and Live 8 concerts pushed for debt relief for underdeveloped nations in Africa and elsewhere during a second debt crisis in the late 1990s and early 2000s.
Environmental debt swaps were uncommon during the past three decades and often involved small, government-to-government deals around $10 million to $20 million. But in recent years there have been efforts to scale them up, although they can be administratively complex and expensive to arrange.