Barbados is hoping to execute a “debt-for-climate” swap early next year to secure savings of around $300 million over a 15 year period to fund clean water supplies, the island state’s finance minister told Reuters on Tuesday.
The government is working with the Inter-American Development Bank and the European Investment Bank on credit guarantees, Ryan Straughn said in an interview on the sidelines of the International Monetary Fund and World Bank Annual Meetings in Marrakech, Morocco.
“It would be a similar structure to what we did last year with the blue loan, which was very, very successful,” Straughn said.
In September 2022, Barbados carried out a “debt-for-nature” swap, which saw $150 million of international bonds swapped for cheaper debt, generating $50 million for marine conservation.
Debt-for-nature swaps have grown in popularity recently, with excitement sparked in particular by Ecuador’s record $1.6 billion swap in May.
At their simplest, debt-for-nature swaps see a country’s debt bought up by a bank or specialist investor and replaced with cheaper loans, usually with a development finance “credit guarantee” or “risk insurance” helping bring the cost down. The savings are meant to fund conservation – or a climate-related purpose, in Barbados’ latest planned deal.
The savings from the island’s mooted “debt-for-climate” swap will be used to upgrade a water treatment plant to help better manage water resources and improve food security, Straughn said.
“We’ve had to implement water restrictions this year. And (the upgraded plant) would have made a substantive difference in terms of the way that we manage the water,” he said.
Barbados’s previous debt-for-nature swap funnelled money towards protecting and rehabilitating the surrounding Caribbean sea. A debt-for-climate swap would be an almost completely new concept, though, and one that other climate change vulnerable countries are likely to want to explore.
For Barbados, images of crystal clear waters lapping palm fringed beaches are crucial for the key tourism sector, which accounts for over 40% of the nation’s GDP and roughly 40% of jobs.
Source: Reuters
