Debt for Climate Swaps

The document argues that Middle Income Countries (MICs) face a critical gap in debt relief mechanisms following the COVID-19 pandemic, as they are ineligible for the Debt Suspension Servicing Initiative (DSSI) despite high debt burdens that crowd out climate spending. It proposes Debt for Climate (DFC) swaps, where creditor nations forgive a portion of external debt in exchange for the debtor nation making local currency payments toward climate projects. The report outlines eligibility criteria for debtor nations—including a requirement of no imminent liquidity crisis and high bilateral external debt—and suggests three specific use cases: an Accelerated Coal Power Retirement Mechanism (ACPRM), an Accelerated Energy Efficiency Adoption Mechanism (AEEAM), and Nature-Based Solutions (NBS) for adaptation. It identifies specific priority countries for these mechanisms, such as Vietnam and the Philippines for coal retirement, and South Africa and Uzbekistan for energy efficiency, based on energy intensity and carbon dependency data.

• Middle Income Countries (MICs) lack dedicated debt relief interventions despite high debt service costs; the IMF estimates that public debt service costs to government tax revenue will exceed 20% in a majority of low-income and emerging countries in 2021.
• Debt for Climate (DFC) swaps differ from previous Debt for Nature (DFN) swaps by focusing on economic recovery and larger ticket sizes to generate significant climate impact, rather than primarily addressing liquidity crises to prevent default.
• Eligible countries for DFC swaps should be Middle Income Countries (MICs) or Low Income Countries (LICs) not part of the DSSI, with public external debt held bilaterally exceeding USD 3 billion or 5% of GDP, and no imminent liquidity crisis.
• The Accelerated Coal Power Retirement Mechanism (ACPRM) is proposed for countries with high coal dependence, specifically those where coal imports exceed 25% of total consumption and coal generates over 40% of power; Vietnam and the Philippines are identified as priority candidates.
• The Accelerated Energy Efficiency Adoption Mechanism (AEEAM) targets countries with high energy and carbon intensity (fossil fuel energy consumption > 70%), with South Africa, Uzbekistan, and Thailand identified as relevant candidates.
• Adaptation and Nature-Based Solutions (NBS) are proposed for the most climate-vulnerable nations, identified via the ND-GAIN Index; priority countries include Zimbabwe, Bangladesh, Laos, and Cambodia.

APA

Singh, D., & Widge, V. (2021). Debt for Climate Swaps. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2021/05/Debt-for-Climate-Swaps-Blueprint-May-2021.pdf

Chicago

Singh, Divjot, and Vikram Widge. Debt for Climate Swaps. Climate Policy Initiative, 2021. https://www.climatepolicyinitiative.org/wp-content/uploads/2021/05/Debt-for-Climate-Swaps-Blueprint-May-2021.pdf.

Wikipedia

{{cite report |last1=Singh |first1=Divjot |last2=Widge |first2=Vikram |title=Debt for Climate Swaps |publisher=Climate Policy Initiative |date=May 2021 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2021/05/Debt-for-Climate-Swaps-Blueprint-May-2021.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{singh2021debt, author = {Singh, Divjot and Widge, Vikram}, title = {{Debt for Climate Swaps}}, institution = {Climate Policy Initiative}, year = {2021}, month = may, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2021/05/Debt-for-Climate-Swaps-Blueprint-May-2021.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }