Small island developing states are currently faced with two significant challenges that are more onerous due to limited financial resources: adapting to increasing climate change risk and recovering from the pandemic. Debt-for-climate swaps provide an avenue for SIDS to address these challenges.
Debt-for-climate swaps have long been proposed as an alternative source of climate finance for developing countries. These mechanisms consist of bilateral or multilateral debt being forgiven by creditors in exchange for a commitment by the debtor to use outstanding debt service payments for national climate action programs. Debt cancellation, suspension or rescheduling may also be components of an overall restructuring of debt. In the Caribbean, debt-for-climate swaps have been proposed by a range of regional bodies, and there have been a few small-scale bilateral swaps, mostly focusing on broader environmental issues such as conservation. For example, Jamaica engaged in a debt-for-nature swap in 2004 with the United States government and The Nature Conservancy, providing $16 million over a period of 20 years for forest conservation activities. However, large-scale debt-for-climate swaps are still rare.
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https://www.nature.com/articles/s41558-021-01194-4