Debt-for-climate swaps for small islands

Debt swaps for climate have long been proposed as an alternative source of climate finance for developing countries14. These mechanisms consist of the cancellation of bilateral or multilateral debt by creditors in exchange for a commitment by the debtor to use debt service payments for national climate action programs. Debt cancellation, suspension or rescheduling can also be elements of a comprehensive debt restructuring. In the Caribbean, climate debt swaps have been proposed by a range of regional bodies, and there have been some small-scale bilateral exchanges, focusing primarily on broader environmental issues such as conservation.15. For example, Jamaica entered into a debt-for-nature swap in 2004 with the United States government and The Nature Conservancy, providing $ 16 million over 20 years for forest conservation activities.15. However, large-scale climate debt swaps are still rare.

Debt-for-climate swaps have the potential to turn massive debt into opportunities to reduce climate vulnerability and implement much-needed adaptation. They provide a predictable flow of finance for longer-term adaptation or capacity building projects where it may be difficult to secure other types of climate finance. For example, these funds can be used for long-term maintenance of adaptation measures that have been implemented with specific budgets for short-term projects, or they can be used to strengthen the human resources of national departments responsible. of climate change. Debt swaps for climate can also attract additional funds by leveraging support from a range of other sources, for example, including incentives to promote private sector support.15. These exchanges would thus contribute to the Paris Agreement, which stipulates that developed countries must mobilize climate finance from a wide variety of sources through a variety of actions and take into account the needs and priorities of developing countries.16.

Debt swaps for climate in the region will need to go beyond old approaches to debt relief. Some Caribbean SIDS have been excluded from debt relief initiatives due to relatively high GDPs15. The emphasis on GDP as an indicator of climate finance assistance has been questioned repeatedly by SIDS, who argue that income profiles do not take into account disproportionate vulnerability to climate change, increasing costs of response and recovery from climate-related disasters and costs of climate action. The Alliance of Small Island States (AOSIS) proposed using a multidimensional vulnerability index, which would recognize the special circumstances and vulnerabilities of SIDS and would not disqualify access to innovative financial instruments based on GDP.17. Debt swaps for climate must ensure that funds are targeted towards climate action so that they can support better adaptation and complement other approaches to debt relief.

Swaps should also be tailored to the circumstances of each country to take into account different creditors and other country contexts. Key elements of success include high-level political support and the link between the exchange and adaptation priorities outlined in national UNFCCC documents, such as national adaptation plans or NDCs. This would ensure that exchanges respond to adaptation needs identified at the national level, alleviate concerns that exchanges may be donor driven, and limit where and how funds can be used.

Escalating debt, limited climate finance for adaptation, difficulties in accessing climate finance and the growing vulnerability of Caribbean SIDS are all exacerbated by the effects of climate change and the COVID-19 pandemic. There is an urgent need for climate debt swaps to go beyond proposals and pilot projects and be used more widely in the region to increase funding for adaptation needed to increasing climate risks.

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