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Source: The post is based on the article “Gabon announces $500 million debt-for-nature swap deal for marine conservation” published in Down To Earth on 18th August 2023.
What is the News?
Gabon has announced a $500 million debt-for-nature swap.
In Africa, it is the largest such deal signed by any country to refinance its debt and conserve marine resources.
What is Debt-for-nature swap?
Debt-for-nature swaps allow heavily indebted developing countries to seek help from financial institutions in the developed world with paying off their debt if they agree to spend on conservation of natural resources.
Usually banks in developed countries buy the debts of such countries and replace them with new loans which mature later. These have lower interest rates.
How do debt-for-nature swaps work?
A debt-for-nature swap can be multi-party or bilateral.
The most common form of multi-party debt-for-nature deal is when a third-party institution – usually an international non-governmental organization such as Conservation International – buys part of a country’s external debt from the institution that had bought it initially often at a discount. That organization then agrees to let the debtor country pay the debt off by investing a certain amount of local currency – usually significantly less than the face value of the original debt – in a biodiversity conservation plan.
In a bilateral deal, a country which owns some of another country’s debt agrees to discount it in exchange for the debtor country investing an agreed amount in a conservation plan.This frees the indebted country from having to pay off some of its debt and it can instead invest its own resources to preserve its biodiversity.
What is the significance of Gabon’s debt for nature swap?
Gabon’s debt for nature swap is the world’s second-largest debt-for-nature swap.
In May 2023, the world’s first and largest debt swap to conserve oceans was signed by Ecuador.
How debt for nature swap could help South Asia?
The debt crisis in the Global South has raised the need for new solutions, and one promising approach is debt-for-nature swaps.
These swaps are seen as important because developing countries face two interconnected challenges. Firstly, they need to borrow money from international creditors to support their development plans. Secondly, they must adapt to the growing impacts of climate change and biodiversity loss.
South Asia, in particular, faces significant challenges in this regard. Sri Lanka is still grappling with the consequences of poor financial management. Pakistan’s economy, burdened with debt, is struggling to recover from the 2022 floods.
The Maldives, Nepal, and Bangladesh are all dealing with rising food and housing costs, while India’s economic growth has slowed considerably.
