Africa seeks debt-for-climate swaps to finance equities

African leaders are seeking debt-for-climate swaps to reduce unsustainable levels of international debt by agreeing to climate action and commitments, a strategy that could be beneficial both for the continent’s worst-hit nations and for the entire forest-dependent planet. of Gabon and the biodiversity of Madagascar.

The “debt swaps” strategy for climate intervention came to the fore at the Conference of African Ministers of Finance, Planning and Economic Development in Addis Ababa. It’s a model that has been adopted in the Indian Ocean nation of Seychelles, where 30% of its ecologically important territory will be placed under marine protection as part of a groundbreaking 2018 debt swap deal.

The week-long conference, hosted by the United Nations Economic Commission for Africa (UNECA), focused on the challenges Africans face in dealing with floods, droughts, food insecurity and related climate impacts that disproportionately affect their nations.

At the same time, African leaders are trying to boost their economies while carrying the burden of their crushing debt, even as they continue to recover from the impacts of the COVID-19 pandemic. UNECA’s Hanan Morsy reminded participants that in the 10 poorest nations, nations as diverse as Burundi, South Sudan and Malawi, between 60% and 82% of people live in poverty.

Moving out of low income levels is made difficult by climate change

Breaking out of low levels of income and wealth is now becoming more difficult due to climate change, as seen in the recent floods in Madagascar, Malawi and Mozambique.said Albert Muchanga, Commissioner for Trade and Industry at the African Union Commission. “We must add to this the looming debt crisis that could undermine all the growth achievements of the past 23 years.”.

In 2022, public debt to GDP in Africa was 64.5%, UNECA said. Some experts estimate it to be as high as 70% or more, including the authors of a 2021 report which explores the climate change benefits of debt swaps.

“There is potential to address these crises through ‘general purpose’ debt financing linked to climate and natural key performance indicators (KPIs),” the report’s authors said. “For highly indebted African countries, this can be done through climate-related debt conversions or swaps.”

It’s a way to ease economic pressure on at least 22 African nations facing debt crises, including Sahelian nations that kept climate change on the agenda during a recent meeting in Niamey, Niger. Debt swaps are a solution implemented elsewhere, including Belize, Barbados and now Ecuador, and can allow poorer nations to invest in climate adaptation and resilience.

Sustainable Development Goals, debt swaps and blockades

Countries struggling to pay off debts will not be able to invest in Sustainable development goals and climate action for years”, warned Achim Steiner of the United Nations Development Program during the Sciences Po forum last month. “In addition, capital markets will block developing economies from accessing the new financing they need to move forward.”.

Like Steiner, African leaders have stressed the need for debt-for-nature and debt-for-climate swaps, but this requires the cooperation of China and other creditors, including the G20, the International Monetary Fund (IMF), the World Bank and Bank African Development.

For swaps to really have an impact, the number and size of transactions must increase significantly,” says the IMF. “That means dealing with scale barriers and improving the financial terms under which exchanges take place.”.


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