DEBT-FOR-NATURE SWAP (Syllabus: GS Paper 3 - Env & Eco)

Context: Gabon announced a $500 million debt-for-nature swap. 

• Debt-for-nature swaps allow heavily indebted developing countries to seek help from financial institutions in the developed world with paying off their debt if they agree to spend on conservation of natural resources.

• Usually banks in developed countries buy the debts of such counties and replace them with new loans which mature later. These have lower interest rates.

Key Points

• In Africa, it is the largest such deal signed by any country to refinance its debt and conserve marine resources. 

• Gabon’s debt has been restructured under a Blue Bond in the world’s second-largest debt-for-nature swap.

• In May 2023, the world’s first and largest debt swap to conserve oceans was signed by Ecuador. 
• Under the debt-for-nature swap, Gabon has agreed to a deal with the Bank of America, the US International Development Finance Corporation (USDFC) and The Nature Conservancy (TNC), to refinance $500 million in national debt toward marine conservation efforts in the country.
• This is the fourth project under TNC’s “Blue Bonds for Ocean Conservation” strategy.

• Blue Bonds for Ocean Conservation is one of TNC’s most innovative solutions, supporting island and coastal nations to use debt solutions to create long-term sustainable financing that can help protect 30% of our global ocean while achieving sustainable economic development and adapting to climate change.

• Gabon is the fourth country to partner with TNC on a Blue Bonds project after Seychelles, Belize and Barbados. 

• As part of the deal with Gabon, USDFC is providing political risk insurance of up to $500 million for the financing, which lowers the cost of debt for Gabon. 
• This transaction will enable the country to make annual contributions to an independent conservation fund and an endowment that will continue to fund conservation after the bonds are repaid.