Reforming climate finance: Debt-for-nature swaps in Latin America

This briefing by Zero Carbon Analytics examines debt-for-nature swaps as a tool to address the intersecting crises of public debt, climate change, and biodiversity loss, with a specific focus on Latin America and the Caribbean. It argues that while these swaps are gaining popularity, they are not a 'silver bullet' due to their limited scale, reliance on local currency, and potential risks to national sovereignty and Indigenous land rights.

• Developing countries are facing a severe public debt crisis that hinders climate action. In 2023, developing countries held 30% of total public debt, and one in three of these nations allocated more funds to interest payments than to essential sectors including health, education, and climate action. Furthermore, 93% of the countries most vulnerable to the climate crisis are either already in debt distress or at significant risk of it.
• Climate and biodiversity finance for developing nations has predominantly been provided as loans rather than grants, which exacerbates existing debt burdens. Between 2016 and 2020, 81% of the climate finance received by countries in Latin America and the Caribbean was in the form of loans. Globally, between 2015 and 2020, approximately 54% of direct climate finance was provided as loans, totaling USD 189 billion.
• Debt-for-nature swaps have a very limited impact on overall debt reduction. Eurodad calculations indicate that between 1987 and 2023, such swaps offset only about 0.11% of total debt payments made by low- and middle-income countries, which amounted to USD 7.6 trillion. Other estimates suggest that between 1987 and 2021, approximately 145 deals were struck globally, treating around USD 3.7 billion of debt face value.
• The International Monetary Fund (IMF) suggests that debt-for-climate swaps are only economically viable in specific scenarios. They are generally less effective than conditional grants when debt is sustainable, and less advantageous than comprehensive debt restructuring when debt is unsustainable. They may be viable when fiscal risks are high and climate adaptation is efficient, as they can create more fiscal space than grants.
• Debt-for-nature swaps face significant criticisms regarding sovereignty, Indigenous rights, and financial structure. Critics argue they can lead to a loss of national sovereignty over land and may be implemented without consulting local or Indigenous communities. Additionally, they do not introduce new international financing but rely on local currency, and some have been criticized for commodifying nature as a financial asset.
• In Latin America and the Caribbean, the region is highly vulnerable to climate change despite producing only 6.7% of global emissions. The region holds 50% of global biodiversity, 33% of water resources, and 23% of forests. However, forest cover decreased from 53% in 1990 to 46% in 2020, driven by urban expansion and agriculture.
• Case studies in Latin America highlight various failures and risks of the swap model. In Bolivia (1987), the swap halted Indigenous land tenure efforts and imposed restrictions on traditional activities. In Costa Rica (1988-1989), high fixed costs for parks consumed 90% of budgeted funds, and some bonds yielded negative real interest. Ecuador's 2023 'blue loan' for the Galápagos Islands, the world's largest such deal, transferred sovereignty of marine areas to a private entity, the Galapagos Life Fund.

APA

Team, Z. (2024). Reforming climate finance: Debt-for-nature swaps in Latin America. Zero Carbon Analytics. https://zerocarbon-analytics.org/finance/reforming-climate-finance-debt-for-nature-swaps-in-latin-america/

Chicago

Team, ZCA. Reforming climate finance: Debt-for-nature swaps in Latin America. Zero Carbon Analytics, 2024. https://zerocarbon-analytics.org/finance/reforming-climate-finance-debt-for-nature-swaps-in-latin-america/.

Wikipedia

{{cite report |last1=Team |first1=ZCA |title=Reforming climate finance: Debt-for-nature swaps in Latin America |publisher=Zero Carbon Analytics |date=28 August 2024 |url=https://zerocarbon-analytics.org/finance/reforming-climate-finance-debt-for-nature-swaps-in-latin-america/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{team2024reforming, author = {Team, ZCA}, title = {{Reforming climate finance: Debt-for-nature swaps in Latin America}}, institution = {Zero Carbon Analytics}, year = {2024}, month = aug, url = {https://zerocarbon-analytics.org/finance/reforming-climate-finance-debt-for-nature-swaps-in-latin-america/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }