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Debt swaps could free funds to tame climate, biodiversity and virus threats

Tue, 8th Sep 2020 00:01

By Laurie Goering

LONDON, Sept 8 (Thomson Reuters Foundation) - In Kenya, the
coronavirus pandemic has dried up eco-tourism, cutting off
sources of funding that help protect wildlife and pay an income
to communities working to preserve nature.

But forgiving a share of Kenya's hefty foreign debt, in
exchange for the government devoting those resources to fighting
climate change threats and biodiversity loss, could tackle
several big problems at once, researchers said on Tuesday.

"As part of pandemic economic rescue packages, governments
have an opportunity to address simultaneously the crises of
debt, climate and biodiversity destruction," researchers from
the London-based International Institute for Environment and
Development (IIED) wrote in a report.

It ranks countries that would benefit most from such "debt
swaps" based on their vulnerability to climate change, richness
of biodiversity, indebtedness and creditworthiness.

At the top of the list are Cape Verde - an island nation off
the coast of West Africa - Vietnam, Honduras, Kenya, Nicaragua
and Papua New Guinea.

In Vietnam, for example, swapping debt for nature and
climate protection could help farmers in the Mekong Delta - a
major food-growing area at high risk of sea level rise - switch
to salt-tolerant crop varieties, said report co-author Paul
Steele.

Opening up budget space could also expand a government
effort that pays farmers, particularly in the poorest indigenous
communities, to plant trees and conserve forests, he said.

Most of the $8 trillion in debt owed by developing nations
in 2019 - before the virus crisis - is held by wealthy countries
in the Organisation for Economic Co-operation and Development,
China and large asset managers, Steele said.

All might have good reason to consider such swaps, he told
the Thomson Reuters Foundation.

China, for instance, is the host of the next Convention on
Biological Diversity summit, now delayed to 2021, which aims to
increase finance for nature protection, among other goals.

As the biggest holder of bilateral debt with developing
nations, China could set an example by testing out debt swaps,
and recently mentioned them at an Asian Infrastructure
Investment Bank meeting, Steele said.

Asset managers facing debt write-offs as a result of the
coronavirus-linked downturn might opt to put them to productive
use - which could both support ailing economies and reduce the
need for more debt relief in the future, Steele said.

Some investors that have made commitments to net-zero
emissions by 2050 could also consider debt swaps as part of
their broader mission, he added.

Debt-for-nature and debt-for-climate swaps are a relatively
new idea. The Seychelles in 2018 signed a $27-million deal
brokered through The Nature Conservancy, with the freed-up cash
going to set up a big marine reserve, Steele said.

Similar agreements might particularly suit other small
island developing states in the Caribbean or Pacific with large
debt, high climate vulnerability and rich biodiversity, he said.

In all the swaps, money would be made available for climate
and nature protection under a "results-based" payment system, in
which the debtor nation must do what it promises to obtain the
debt relief, he said.

While Britain no longer holds much developing-country debt
after forgiving most of it decades ago, as host of next year's
major U.N. climate summit it could put pressure on creditors in
London's financial centre to participate in such swaps, he said.

These deals may become more attractive - and important - as
debt rises in developing countries battling the coronavirus
pandemic and economic downturns, researchers noted.

Developing-world debt was already reaching record levels
before the COVID-19 crisis, rising to 170% of gross domestic
product across the countries in 2019 from 110% in 2010,
according to the International Monetary Fund.
(Reporting by Laurie Goering @lauriegoering; editing by Megan
Rowling. Please credit the Thomson Reuters Foundation, the
charitable arm of Thomson Reuters. Visit http://news.trust.org/climate)

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