Climate Debt Swaps a Potential Lifeline for Cash-Strapped Island Nations

Glasgow, 5 November 2021 - Adapting to climate change requires financing, but for cash-strapped island nations, the money to build resilience is often slow to materialize or out of reach all together.

One promising solution has been climate adaptation debt swaps, which presents the world’s small island developing States (SIDS) with new opportunities to service their debts and at the same time build resilience to the mounting costs from a changing climate.

Debt swaps represent a relatively new investment model combining public and private funds with each leveraging the other. This approach has been previously implemented by the Seychelles, whereby the country’s government agreed a debt swap with the Nature Conservancy, alongside a other investors.

Representatives from island nations and development partners discuss debt for climate swaps at COP26, GlasgowUnder the terms of the $21million deal, the Nature Conservancy and investors bought a portion of Seychelles' national debt from European nations, including the UK and France. The debt is now held by a trust, the Seychelles Conservation and Climate Adaptation Trust (SeyCCAT), which offers the country lower interest rates on its repayments. The savings of over $8 million are ring-fenced for projects designed to protect marine life and address the impacts climate change.  

Lessons learned from Seychelles are being applied elsewhere such as in the Caribbean.

Building on the success of the Seychelles model, OHRLLS, ECLAC, ECA, and ESCAP are developing climate adaptation debt swaps in three pilot countries in the Caribbean: Antigua and Barbuda, St. Lucia and St. Vincent and the Grenadines.

Progress of this work in the Caribbean was showcased at a COP26 side event.

Beyond the Seychelles example, SIDS and potential partners have shown keen interest in the potential of climate adaptation debt swaps as a way to address both debt and climate vulnerabilities in island nations.

Among the discussions in Glasgow were the importance of ensuring replicability including through using a set of standardized conditions which can serve as a basis for negotiation for all SIDS as well as making sure that the process is a win-win for both SIDS and creditors.