5 April, 2018

Debt for climate swaps: Caribbean outlook

Authors

Frances Fuller, Luis Zamarioli, Bianka Kretschmer, Adelle Thomas and Laetitia De Marez

Caribbean SIDS are among the most heavily indebted per capita developing countries in the world and are also highly vulnerable to the impacts of climate change. Public debt significantly restricts capacity and fiscal space to build resilience to climate change and thus undermines debt sustainability and economic growth.

Caribbean SIDS are tasked with addressing low and stagnated growth, high public debt and vulnerabilities to climate change impacts. Debt for climate swaps may provide an avenue for SIDS to address debt challenges while also increasing resilience to climate change.

Key Points

  • In debt for climate swaps, bilateral and multilateral debt relief could enable developing countries, including SIDS, to reduce their external debt while investing the liberated funds in national climate adaptation and mitigation programmes.
  • Due to SIDS’ internationally recognised particular vulnerabilities to climate change, debt for climate swaps could in principle help to lift Caribbean SIDS and their special circumstances in the focus of the international debt relief debate.
  • Debt for climate swaps belong to so-called alternative or innovative sources of financing for climate adaptation or development beyond existing bilateral and multilateral sources. Swaps have the potential to serve as an innovative instrument for mobilizing financing to tackle several of Caribbean States’ challenges, in particular insufficient climate adaptation finance and debt sustainability.
  • There is existing experience with debt for nature swaps in the Caribbean, with Jamaica, Haiti, Grenada and Antigua and Barbuda being involved in negotiating swaps, with various levels of success. The Commonwealth Secretariat, World Bank and ECLAC have also explored the potential of debt for climate swaps in the region.
  • Key elements of success for debt for climate swaps include high-level political support, whole-of-government support from the debtor’s government and anchoring adaptation or mitigation programmes in pledges outlined in national development plans, NAPs, NDCs and plans for securing low-carbon climate resilient economies.
  • A strong starting point for debt for climate negotiations would be for Caribbean nations to consider a regionally crafted programme, with broad stakeholder engagement in the definition of clear rules and goals for adaptation targets and eligible projects.

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