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Debt-for-nature swaps could help economies, ecosystems [1]
['Ryan Jolley']
Date: 2024-09-25 14:24:32+00:00
Despite its stunning natural beauty and a strong workforce, Zambia faces environmental and economic challenges.
Frequent drought has dried the iconic Victoria Falls to a trickle, poachers threaten vulnerable wildlife, and deforestation continues unabated. At the same time, mounting national debt makes it difficult for Zambia to invest in critical conservation — key to supporting hundreds of thousands of jobs and to protecting Zambia’s natural beauty.
What’s lost in an environmental crisis is more than its cost to the natural world. Nachilala Nkombo, the Zambia country head of the World Wildlife Fund, explains, “that is somebody’s job, somebody’s food, and that is the country’s future at risk.”
But what if there were a way for Zambia to redirect its debt service payments to tackle environmental conservation at the same time? Debt-for-nature swaps offer one solution. These financial-environmental approaches allow countries like Zambia to refinance or redirect part of their debt in exchange for committing to invest part of the savings into conservation projects.
The system works because Zambia’s lenders recognize the importance of conserving Zambia’s environment. “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,” explains Kristalina Georgieva, managing director of the International Monetary Fund.
Since 1987, over 140 debt-for-nature swaps have redirected billions of dollars to land, water and species conservation in Barbados, Belize, Bolivia, Costa Rica, the Philippines and Seychelles.
IMF researchers found that 34 of the 59 developing economies most vulnerable to climate change are also at high risk of fiscal crises. Moreover, investment needs for climate action continue to be significant. According to the International Energy Agency, about $4.3 trillion USD per year needs to be invested in clean energy until 2030, increasing thereafter to $5 trillion per year until 2050, to reach net-zero emissions by 2050.
Debt-for-nature swaps are not easy. Sometimes countries cannot meet political or financial requirements or risks are too high. However, recent examples suggest that debt-for-nature swaps can be a powerful tool to help countries protect their natural beauty.
In July, the United States and Indonesia signed a $35 million debt-swap agreement to support coral reef ecosystems, the latest deal under the 25-year-old U.S. Tropical Forest and Coral Conservation Act. In September 2023, Peru and the U.S. completed a TFCCA debt-for-nature swap for $20 million to support the national parks and protected areas in the Peru’s Amazon.
In May 2023, Ecuador secured an $85 million credit guarantee from the Inter-American Development Bank and $656 million of political risk insurance from the U.S. International Development Finance Corporation to protect the endangered Galapagos Islands ecosystem. Ecuador’s Foreign Minister Gustavo Manrique Miranda said biodiversity was now a valuable “currency.”
In 2021, Belize struck a $364-million deal with the Nature Conservancy to cut its debt by $189 million. This deal also secured around $180 million in funding for conservation over the next 20 years. As part of the agreement, Belize committed to protecting 30% of its marine areas by 2026.
After defaulting on its sovereign debt in 2021, Zambia continues efforts to restructure its $13 billion in debt. As the cost of servicing its debt constrains the government’s ability to provide social services and invest in Zambia’s future, the government is exploring the possibility of debt-for-nature swaps redirect debt service payments to conservation efforts. WWF estimates the deal would make $750 million to $1 billion available for conservation projects.
If successful, this innovative financial approach could help Zambia protect its invaluable biodiversity.
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https://share.america.gov/debt-for-nature-swaps-could-help-protect-economies-ecosystems/
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