Debt for climate swaps: innovative financial instruments for public debt management

Date: 6 September 2022
Where: Radisson Blu Okoume Palace Hotel, Libreville, Gabon, and online
View of a hill and the sea on the left.

The government of Cabo Verde with IIED support is considering a debt swap with Portugal and other creditors in exchange for investments in the blue economy (Photo: SIDS AIO IWRM via FlickrCC BY-NC-ND 2.0)

IIED co-organised an event on debt for climate swaps as part of the 2022 Africa Climate Week on 31 August, featuring chief economist Paul Steele.

The world is facing a triple crisis of debt, climate change and biodiversity loss. The impacts of the COVID-19 pandemic on the economic system have increased volatility in developing country markets, particularly in Africa, where high levels of debt are increasing the levels of vulnerability in the region.

Several countries in Africa are now considering debt-for-climate swaps as an innovative solution to manage mounting public debts, climate change challenges – particularly underfunded adaptation action – and COVID-19 recovery.

Traditionally, these instruments represent an exchange of the existing debt contract with a new one, where the previous contract is normally discounted. The proceeds from the discount or foregone debt would then be used in an agreed manner to fund project to tackle climate change.

This side event, co-organised by UNEP, IIED, the Commonwealth Finance Hub and the government of eSwatini as part of Africa Climate Week (ACW 2022), brought together government representatives and experts to exchange in-country experiences to design effective debt-for-climate swaps, including the advantages of this innovative financing instrument for advancing action for climate adaptation.