Debt-for-nature swap
Also called: Debt-for-climate swap · Topic: Balance of Payments and Exchange Rates · NCERT: Beyond NCERT
Meaning
A debt-for-nature swap is a deal in which creditors forgive part of a country's debt. In return, the country commits to spend money on conservation, such as protecting forests, oceans or wildlife. When the spending is on climate action, it is also called a debt-for-climate swap. The deal lowers the debt burden and pays for the environment at the same time. It is one of the new tools of innovative finance for indebted developing countries.
Example
Belize did such a swap in 2021, and Ecuador and Gabon did so in 2023. Ecuador's deal was tied to protecting the Galápagos Islands. Part of each country's debt was cut, and in return the country committed funds to marine and nature conservation.
Don't confuse with
- Haircut: this is a plain cut in the principal during a debt restructuring, with no conditions on how the savings are spent. A debt-for-nature swap ties the relief to conservation spending.
Related concepts
- External debt
- Debt service ratio
- Sovereign credit rating
- Sovereign default
- Sovereign debt restructuring
- Official Creditor Committee
- Comparability of treatment
- Blended finance