Recently, Portugal and Cape Verde sealed an agreement for a “debt-for-nature” swap, just days after Zambia said it too was looking at a similar proposal from green group WWF.
About debt-for-nature swap
- Debt swaps provide opportunities for raising capital in low-income countries to address environmental and other policy challenges and support green growth.
- According to IMF, countries that are most vulnerable to climate change and the associated loss of natural biodiversity—are often those least able to afford investment to strengthen resilience because their budgets are burdened by debt. Such countries face a high risk of fiscal crisis.
- Debt-for-climate swaps and debt-for-nature swaps seek to free up fiscal resources of these countries so that governments can improve resilience without triggering a fiscal crisis or sacrificing spending on other development priorities.
- Creditors provide debt relief in return for a government commitment to, say, decarbonize the economy, invest in climate-resilient infrastructure, or protect biodiverse forests or reefs.
- Debt swaps can help the world’s low-income countries avoid default and enable them to redeploy part of their debt repayments to invest in measures to tackle climate change, nature protection, health or education.
- Former Portuguese colony Cape Verde, an island nation off West Africa threatened by sea level rise and coastal erosion, owes about 140 million euros to Portugal and more than 400 million euros to banks and other entities.
- The debt-for-nature swap negotiated with Portugal would see an initial 12 million euros of scheduled debt repayments put into an environmental and climate fund to help Cape Verde switch to cleaner energy supplies and tackle climate change.
