G20 leaders urged to replicate Cabo Verde debt restructure for other countries
Linking debt relief to key targets on climate and nature could address all three crises.
The recent debt restructure for climate and nature agreed between Cabo Verde and Portugal, designed to release finance to help address the climate crisis and loss of nature, shows that such deals could be possible for other highly indebted poor countries, according to new analysis from IIED.
The increasingly unsustainable levels of debt affecting low-income countries have been a focus of the G20 agenda as post-COVID-19 recovery and the war in Ukraine have strained economies around the world. G20 finance ministers met recently in Bengaluru, India and have agreed to prepare information on the global debt landscape. The agreement provides an opportunity for G20 heads of state, who convene later this year, to show leadership on this vital issue.
In 'Redesigning debt swaps for a more sustainable future' IIED researchers lay out lessons from their experience supporting the Cabo Verde debt swap deal with Portugal.
Buy-in from the Finance Ministry leant credibility, making it easier to engage with other ministries with climate and biodiversity responsibilities including the Ministry of Environment, Agriculture, Fisheries and Energy. Local partners with expertise in climate and nature, as well as finance experts, gave technical support to the debt swap.
Laura Kelly, director of IIED’s research on sustainable markets, said: “Rocketing debt levels, the climate crisis and the loss of biodiversity are all urgent issues, but IIED has shown how these crises can be tackled together. The agreement between Cabo Verde and Portugal will unlock finance for protection of the ocean and nature, a just energy transition and enhancing the tourism industry.
“Other creditors and debtor nations should be inspired by this example to harness debt restructuring as part of the solution to the challenges of climate change and biodiversity loss.”
The transaction between Cabo Verde and Portugal involved developing key performance indicators which must be achieved to receive the debt relief. These indicators were identified based on Cabo Verde’s national commitments and strategies as well as local stakeholders' priorities and will be negotiated with Portugal in the coming months.
The failing architecture for debt restructuring, known as the common framework, could be reformed by the G20. In its present form, country debt is handled one by one and creditors, such as private bond holders and China, are slow to engage.
Instead, a strategic approach through Climate and Nature Debt Relief (CaNDR) could provide incentives for countries to work together to address the impacts of climate change and invest in nature.