Why debt-for-climate swaps is key for recovery
Leslie Olonyi
Covid-19 has wildly reiterated the growing external debt problem in the developing world, especially Africa.
Unsustainable debt, environment degradation and climate change continue to overlap, intensify and feed into each other.
Just prior to the pandemic, the total global debt was estimated to be $253 trillion.
Financial institutions such as the IMF and World Bank were already warning about escalating yet unsustainable accumulation of debt particularly to developing countries, explaining that unsustainable debt resulted in nations being more vulnerable to external shocks.
This concern soon manifested once the pandemic hit and developing countries including the majority of African states requested for temporary suspension of debt repayment.
In 2017, about 24 African countries had already exceeded the 55 per cent debt-to-GDP ratio recommended by the IMF, meaning more of their resources would have to be allocated to debt repayment hence starving key sectors such as public health.
With the above in mind, the recent Pledges for Nature by world leaders to reverse biodiversity loss by 2030 are a perfect precursor for the forthcoming 2021-2030 UN Decade on Ecosystem Restoration, and a golden opportunity to simultaneously address the debt problem.
Covid-19 has not only highlighted perils of illegal wildlife trade as a driver of human-caused degradation but also added to the urgency for ecosystem restoration.
As countries begin to negotiate and consider means to restructure sovereign debt or tackle unsustainable debt crisis during a climate emergency, debt-for-climate swaps should take centre stage.
The call to build back better has been a mantra of Covid-19 recovery efforts and fast action to swap some of unsustainable public and private debt for climate protection and mitigation efforts can stimulate a green recovery.
In a debt-for-climate swap, instead of continuing to make external payments on outstanding loans in hard currency, a debtor makes repayments but in local currency, to internal or local projects that boost fast climate mitigation and adaptation, on terms agreed upon between debtors and creditor.
Climate protection, mitigation and adaptation strategies in a debt-for-climate swap can range from actions to reduce emissions of climate super pollutant such as methane, fluorinated gases, tropospheric ozone and black carbon, energy efficiency programmess, afforestation, proforestation to conserving and restoring ecosystems that remove carbon dioxide from the atmosphere such as mangroves, grasslands, wetlands and peat bogs.
Such efforts can have a spill over effect by helping create local green job opportunities, facilitate investment in clean technologies, contribute to long-term recovery of countries with debt, help relieve pressing climate emergency and alleviate poverty.
The terms for a debt-for-climate swap must not be exploitative to the indebted country and must not involve debt accumulated unethically or illegally.
To safeguard the process and expected outcomes, the debt-for-climate swap instrument or framework must have a robust accountability system to counter corruption, misapplication, misuse or leakage of the funds earmarked for climate related projects.
Debt-for-climate swaps as a means to stimulate post Covid-19 recovery, build back better and mitigate climate change are a viable and opportune solution worthy of serious consideration from creditors and lenders such as the IMF, World Bank, EU, US, G20, Paris Club and China.
China is currently the largest global creditor and single largest creditor to Africa.
Therefore, the importance of China’s place in debt-for-climate swap deliberations cannot be over emphasised and the country needs to play a more prominent role by virtue of being a crucial player in climate change, covid-19 and debt related issues.
African states, the African Union and civil society should take the initiative to call for, deliberate and negotiate for debt-for-climate swaps not only of debt relief but also climate justice and climate change mitigation. — The writer is an environment and natural resources lawyer — [email protected]
