The report aims to provide “action-oriented advice that can lead to transactions which will have lasting impact on debt sustainability, climate resilience, and biodiversity conservation” for people and the planet.
It recommends that Africa “look towards” debt-for-nature/climate swaps to “mobilize biodiversity finance for nature-positive projects on a case-by-case basis” as tailored solutions are required for optimal results.
The African Development Bank (AfDB) has published a report that explores ways to effectively mobilize finance for African countries while advancing climate and nature goals in support of Africa’s “nature-positive development agenda.” The flagship publication highlights policy options for sustainable financing, with a focus on debt-for-climate/nature swaps – transactions designed to exchange debt forgiveness for conservation action.
The report titled, ‘Debt-for-Nature-Swaps: Feasibility and Policy Significance in Africa’s Natural Resources Sector,’ seeks to inform the AfDB’s Debt Action Plan and Sustainable Borrowing Policy, as well as specific interventions on debt management and sustainability in African countries, while reducing the risks of debt crisis and distress. Its goal is to provide “action-oriented advice that can lead to transactions which will have lasting impact on debt sustainability, climate resilience, and biodiversity conservation” for people and the planet.
Highlighting the impact of the conflict in Ukraine on energy and food security in Africa and increasing climate vulnerabilities, the report indicates that USD 484.6 billion in additional financing over the next three years is needed to support the AfDB’s constituents’ post-COVID-19 recovery. Among additional challenges, it notes global power imbalances, dynamic markets, climate change, and historical inequalities.
To address “the triple threat of unsustainable debt, climate risk, and degradation of nature” through the African Union’s (AU) Green Recovery Action Plan 2021-2027, the report highlights opportunities and innovations for mobilizing external finance into indebted countries at concessional rates, including private sector financing. It notes, however, that since “each country is unique, with its own natural assets and idiosyncratic sovereign balance sheet,” tailored solutions are required for optimal results, be it sustainability-linked bonds, a debt-for-nature swap, or an alternative solution. The report underscores that pursuing such solutions is in the interest of the broader international community, given the services African ecosystems provide to the biosphere as a whole.
The report notes that globally, the total face value of debt treated through two-party and multi-party swaps is around USD 3.7 billion, of which only about USD 318 million is in Africa. It juxtaposes the proposed USD 200 billion to implement the post-2020 global biodiversity framework, which the UN Biodiversity Conference is expected to adopt in December, with the USD 242.8 billion African countries are currently expected to have to pay to service their debt through 2028. The report’s recommendation is for Africa to “look towards” debt-for-nature/climate swaps to “mobilize biodiversity finance for nature-positive projects on a case-by-case basis.”
The report outlines how the AfDB could support these processes through advisory services, capacity building, market studies, and linkages with relevant partners, as well as by participating in bilateral or multilateral swap arrangements or in a new money debt transaction linked to climate and/or nature “as a purchasing or donor institution.”
The report was produced by the Potomac Group, with support from the Worldwide Fund for Nature (WWF), under the guidance of the AfDB’s African Natural Resources Management and Investment Centre (ANRC). The ANRC advises member countries on natural resource management to ensure nature fully supports Africa’s future economic development objectives.
The African Development Bank, Potomoac Group, and WWF launched the report on 13 October 2022. [Publication: Debt-for-Nature-Swaps: Feasibility and Policy Significance in Africa’s Natural Resources Sector] [Publication Landing Page]