Ruto also seemed to have mended fences with his former boss, outgoing president Uhuru Kenyatta, asking him to keep leading talks on regional crises. His ascent concluded a markedly peaceful election. (Image credit: Brian Inganga/AP)
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Climate vulnerable nations in Africa are showing growing interest in debt-for-climate swaps to address ballooning debt and spur climate investments. Increasingly, they have the ear of financial institutions.Today, 58% of the world’s poorest countries are in debt distress or at high risk of it. In sub-Saharan Africa, Covid-19 has squeezed budgets and pushed average debt levels above 60% of GDP.
Helene Gichenje is the Commonwealth’s regional climate finance adviser for Africa. Russia’s war in Ukraine and rising global inflation “are likely to significantly worsen the debt crisis,” she said at Africa Climate Week in Gabon on Wednesday.
High levels of debt repayments and a shrinking fiscal space have prevented much-needed investments in climate resilience, Gichenje said. And climate vulnerability is driving up the cost of accessing capital.
“There is danger that the vulnerable developing countries will enter a vicious cycle,” she said.
The IMF, the Green Climate Fund and the African Development Bank increasingly support debt-for-climate swaps as a solution.
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Debt swaps mean that instead of making payments to creditors on outstanding loans, debtor countries can use that money in local currency to invest in climate projects under terms agreed with creditors.
This form of debt relief has been around for 30 years but hasn’t seen much use. Despite some positive examples, including a debt-for-nature swap in the Seychelles, the IMF estimates that only up to $4bn worth of debt has been forgiven under swap programmes.
Fiscal space
Cabo Verde, Eswatini and Kenya are among nations looking into how to make debt-for-climate swaps work for them.
“Debt swaps could be a good instrument to give us space in our budget for new investments in renewable energy and the blue and green economy,” Soeli Santos, treasury director at Cabo Verde’s ministry of finance, told the event.
In exchange for partial debt forgiveness, Cabo Verde would, for example, meet some of the commitments made in its 2030 climate plan, Santos said.
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The principle generated significant interest during a meeting of African climate experts in Ethiopia last month as part of discussion on climate finance.
The Egyptian Cop27 presidency is considering launching a debt swap framework at the climate summit in November.
And a number of financial institutions have started to explore how to scale up the relief swaps can provide.
IMF guidance
Last month, an IMF working paper, co-authored by the fund’s deputy chief in the debt department, concluded that, in some circumstances, debt-for-climate swaps made economic sense.
“There is a space for debt-for-climate swaps in the broader climate finance toolkit,” said IMF senior economist Vimal Thakoor. “In many countries, grants are not forthcoming necessarily and debt relief is not necessarily on the table either.”
However, in countries with high levels of debt distress, swaps should not replace broader debt restructuring programmes, the paper argues.
Scaling up debt swaps requires bringing on board a large pool of private and official country creditors. That is no small task but something creditors might be willing to do to support climate goals, it added.
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Although the paper hasn’t been endorsed by the IMF’s board and management, Paul Steele, chief economist at the International Institute for Environment and Development (IIED), told Climate Home it could be “potentially game-changing” should it gain political backing.
“The IMF has the credibility and the most leverage to bring together creditors in a way that would allow them to take forward this kind of international initiative,” he said. “An international initiative on debt swaps for climate and nature outcomes at Cop27 could break the logjam on climate finance.”
The IMF is not alone in exploring options to move this forward.
Andrey Chicherin, head of innovation and technology transfer at the Green Climate Fund, told the meeting that the fund could act as an intermediary in debt swaps by designing adaptation and carbon-cutting programmes and ensure their delivery against the fund’s verification systems and safeguards.
The African Development Bank is finalising a feasibility study on scaling up debt-for-climate and nature swaps in Africa. This is to inform advice to nations on debt relief options.
Biden and Ramaphosa, who spoke by phone in April, are expected to focus their talks on trade and investment, infrastructure, climate and energy, among other issues.South African President Cyril Ramaphosa and United States President Joe Biden will meet on September 16, the White House has announced.
Thursday’s announcement comes as the administration looks to draw African nations closer to the US at a time when South Africa and many of its neighbours have staked out neutral ground on Russia’s invasion of Ukraine.
Last month, US Secretary of State Antony Blinken said the Biden administration sees Africa’s 54 nations as “equal partners” in tackling global problems, during a visit to South Africa.
But the administration has been disappointed that South Africa and much of the continent have declined to follow the US in condemning the Russian invasion of Ukraine.
South Africa abstained in a United Nations vote to condemn Russia’s action, and Ramaphosa has avoided any criticism of Russia and has instead called for a mediated peace.
Biden and Ramaphosa, who spoke by phone in April, are expected to focus their talks on trade and investment, infrastructure, climate and energy, public health and South Africa’s leading role on the continent, officials said.
“The two Presidents will reaffirm the importance of our enduring partnership, and discuss our work together to address regional and global challenges,” White House press secretary Karine Jean-Pierre said in a statement announcing this month’s meeting.
Biden also plans to host a US-Africa leaders’ summit in December.
During the Blinken visit, foreign minister Naledi Pandor maintained South Africa’s neutrality in the Ukraine war. In a press briefing following the meeting, Pandor accused the US and other Western powers of focusing on the Ukraine conflict to the detriment of other international issues.
“We should be equally concerned at what is happening to the people of Palestine, as we are with what is happening to the people of Ukraine,” she said.
Blinken, for his part, underscored that Russia’s blockade of Ukraine’s Black Sea ports has led to scarcities in grain, cooking oil and fertiliser — an issue that has had disproportionate effects on Africans.
“The US is there for African countries in this unprecedented crisis, because that’s what partners do for each other,” Blinken said. “The United States will not dictate Africa’s choices, and neither should anyone else. The right to make these choices belongs to Africans, and Africans alone.”
South Africa’s neutral position is largely because of the support the Soviet Union gave during the Cold War era to Ramaphosa’s African National Congress in its fight to end apartheid – South Africa’s regime of repression against the Black majority that ended in 1994. South Africa is seen as a leader of several African countries that will not side against Russia.
The Biden meeting will come at a critical time for Ramaphosa, who is facing criticism from opposition parties and from within his own party for a scandal over revelations that $4m was stolen from his cattle ranch.
He has been grilled this week by members of parliament about whether the foreign cash had been properly registered with South Africa’s financial authorities and why he did not immediately report the theft. The scandal has damaged Ramaphosa’s reputation as a leader committed to battling his nation’s rampant corruption.
Ramaphosa faces significant opposition in his efforts to be re-elected as the leader of his party at a conference in December. If he fails to win the party leadership he will not be able to stand for re-election as South Africa’s president in 2024.
South Africa’s economy has been in recession since even before the COVID-19 pandemic and a third of the country is unemployed, so Ramaphosa would welcome any announcement of economic support from the US.
During Blinken’s visit to South Africa last month, he praised South Africa and Ramaphosa for achieving a multi-racial democracy after years of white minority rule. He also used the visit to formally launch a new US strategy towards sub-Saharan Africa.
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China will continue to help with the construction of major infrastructure projects in Africa via financing, investment and assistance, the minister said in a speech at a recent meeting of the China-Africa cooperation forum.
The country will also be increasing imports from Africa, helping to develop Africa’s agricultural and manufacturing sectors, and expanding co-operation in emerging industries such as the digital economy, health, and green and low-carbon sectors.
The latest announcement follows China’s cancellation of at least 94 interest-free loans amounting to over US$3.4 billion in Africa between 2000 and 2019.
Finance expert Kanyi Lui of Pinsent Masons said: “China has been forgiving interest-free loans made to developing countries for almost half a century. When many African countries experienced debt distress in the 1980s to 1990s, China forgave over 85% of interest free loans then outstanding. This latest announcement shows China’s continued leadership in working with developing countries in debt distress.”
“As the BRI [Belt and Road Initiative] starts to shift its focus from mega infrastructure projects to ‘small and beautiful’ projects which focus on sustainability, raising living standards and social impact, developing countries would do well to carefully consider their own their interests and developmental needs and how to engage with China in a manner that would maximise the welfare of their people,” he said.
As of 2020, the African nations with the highest external debt to China as a percentage of gross national income are Djibouti (43%), Angola (41%) and the Democratic Republic of Congo (29%), according to World Bank data cited in press reports.
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