African nations eye debt-for-climate swaps as IMF takes an interest

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.

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West African leaders put off further post-coup sanctions | Star Tribune

ACCRA, Ghana — West African heads of state put off fur­ther pun­ish­ing the lead­ers of Mali, Guinea and Burk­i­na Faso at a region­al sum­mit Sat­ur­day, as coup lead­ers in all three coun­tries con­tin­ue to insist that it will take years before new elec­tions can be held.

The 15-nation region­al bloc known as ECOWAS will con­vene again on July 3 before deter­min­ing if fur­ther sanc­tions will be imple­ment­ed in the three sus­pend­ed mem­bers states, ECOWAS Com­mis­sion Pres­i­dent Jean-Claude Kas­si Brou said.

ECOWAS already imposed strong eco­nom­ic sanc­tions against Mali back in Jan­u­ary — shut­ting down most com­merce, along with land and air bor­ders with oth­er coun­tries in the bloc. Those mea­sures have crip­pled Mal­i’s econ­o­my, prompt­ing con­cern about the human­i­tar­i­an con­se­quences on Malians.

The sanc­tions have not yet brought about a polit­i­cal break­through either: In the months since, Col. Assi­mi Goi­ta has only fur­ther iso­lat­ed the coun­try inter­na­tion­al­ly, pulling out of a region­al secu­ri­ty force and also shut­ting down two lead­ing French media broadcasters.

Goita’s gov­ern­ment also still insists that no vote can be held until 2024, which would extend their time to pow­er to near­ly four years despite orig­i­nal­ly agree­ing to an 18-month tran­si­tion back to democracy.

The jun­tas in Guinea and Burk­i­na Faso also have pro­posed three-year tran­si­tions, which have been reject­ed by ECOWAS as too long a wait for new elections.

The wave of mil­i­tary coups began in August 2020, when Goi­ta and oth­er sol­diers over­threw Mal­i’s demo­c­ra­t­i­cal­ly elect­ed pres­i­dent. Nine months lat­er, he car­ried out a sec­ond coup when he dis­missed the coun­try’s civil­ian tran­si­tion­al leader and became pres­i­dent himself.

Muti­nous sol­diers deposed Guinea’s pres­i­dent in Sep­tem­ber 2021, and Burk­i­na Faso’s leader was oust­ed in yet anoth­er coup in the region back in January.

The polit­i­cal upheaval came at a time when many observers were start­ing to think that mil­i­tary pow­er grabs were a thing of the past in West Africa: Mali had gone eight years with­out one, while Guinea had made it 13 years.

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Asso­ci­at­ed Press writ­ers Krista Lar­son in Dakar, Sene­gal, Baba Ahmed in Bamako, Mali; and Boubacar Dial­lo in Conakry, Guinea contributed.