Large-scale debt swaps can help fight debt, climate change and nature loss together
'Tackling the triple crisis: using debt swaps to address debt, climate and nature loss post-COVID-19' by IIED, shows that using large-scale debt swaps as part of post-COVID recovery measures would help address these pressures. COVID-19's economic fallout means less of the finance needed to address poverty and the impact of climate change and biodiversity loss will be available, pushing millions more women, children and men into poverty.
By exchanging an existing debt contract for one that writes off debt or reduces the debt's original value by, for example, having repayments made in the debtor country's currency or charging lower interest rates, a developing country's overall external debt could be reduced.
The money saved would be used to invest in poverty-reducing climate resilience programmes, climate emissions mitigation or biodiversity protection initiatives.
To date, debt swaps have been limited to a few small-scale projects in which the money has been managed in trust funds by international NGOs. IIED's 'Tackling the triple crisis' shows that by creditors channelling the money direct to developing country governments' budgets specifically for financing such action as reforestation or researching or planting climate resilient crops, debt swaps can be large-scale.
This will make them more effective at addressing the needs of the most vulnerable people living in poverty while helping to build resilience to climate change and protecting biodiversity.
Large-scale debt swaps for climate and nature will also benefit public and private lenders as debt will be invested productively to increase sustainable economic growth and so reduce the need for further debt write-offs. It will also help creditors to meet their commitments to improve environmental and social standards.
Such debt for climate and nature swaps will also help achieve the key objectives of increased biodiversity and climate finance set by next year's UN biodiversity conference being held in China and the UN climate summit in the United Kingdom.
IIED dierctor Andrew Norton said: "We are at a crossroads. As governments and powerful institutions meet to work out how to put the global economy back on track, they need to seize the opportunity not only to repair markets but also address the triple crisis of debt, climate change and the destruction of nature. Large-scale debt swaps for climate and nature can help achieve this."
The report calls on the international community to work with debtors to establish a technical working group, under guidance of an international body such as the World Bank, in order to develop a comprehensive and coordinated climate and nature programme swaps initiative over the next three years to address the crisis of debt, climate change and biodiversity loss.
For more information or to arrange an interview, please contact Beth Herzfeld, IIED head of media, on +44 (0)7557 658 482 or email firstname.lastname@example.org.
Notes to editors
- See 'Tackling the triple crisis: using debt swaps to address debt, climate and nature loss post- COVID-19' by Paul Steele, IIED chief economist, and Sejal Patel, IIED climate change researcher. The report includes a comprehensive list of the developing countries that will benefit most from this type of debt relief.
- Developing country debt reached over US$8 trillion in 2019 (PDF). On average developing countries spent over 10% of their government revenues on debt repayments in 2018, and for several least developed and middle-income countries the amount rose to 20% (PDF). Money that is crucial for addressing the climate and biodiversity emergencies as well as education, infrastructure and health.