Published: October 31, 2022 12.34pm GMT
Debt-for-climate swaps allow countries to reduce their debt obligations in exchange for a commitment to finance domestic climate projects with the freed-up financial resources.
Barbados Prime Minister Mia Amor Mottley spoke passionately to the United Nations General Assembly in September about the mounting debt many developing countries are shouldering and its increasing impact on their ability to thrive.
The average debt for low- and middle-income countries, excluding China, reached 42% of their gross national income in 2020, up from 26% in 2011. For countries in Latin America and the Caribbean, the annual payments just to service that debt averaged 30% of their total exports.
At the same time, these countries are facing a “triple crisis of climate change, of pandemic and indeed now the conflict that is leading to the inflationary pressures that lead regrettably to people taking circumstances into their own hands,” Mottley said.
Rising borrowing costs coupled with high inflation and slow economic growth have left developing countries like hers in a difficult position when it comes to climate change. High debt payments mean countries have fewer resources for mitigating and adapting to climate change. Yet climate change is increasing their vulnerability, and that can raise their sovereign risk, increasing the cost of borrowing. Declining productive capacity and tax base can lead to higher debt risks. It’s a vicious cycle.
CVD 