LONDON, Oct 19 (Reuters) – The EU’s lending arm, the European Investment Bank, is pursuing a series of “debt-for-climate” swaps that would see countries from the Caribbean to Africa cut their debt burdens in exchange for combating or adapting to global warming.
Barbados’ finance minister told Reuters this month that it is working with the EIB on what is likely to be the world’s first sovereign debt-for-climate swap, and the head of the EIB department involved says this is not will be the last.
“In terms of these things, it is very difficult to predict how quickly things will materialize, but we are talking to several countries,” Markus Berndt, head of the EIB’s “global” department that lends outside the European Union, told Reuters .
When asked how much he had, he replied: “I don’t think it will be in double figures, but I hope somewhere in the good single figures”.
Debt-for-climate swaps are an offshoot of the wave of debt-for-nature swaps undertaken in recent years by Ecuador, Belize, Gabon, the Seychelles and Barbados.
In their simplest form, these swaps involve buying up a country’s bonds and replacing them with cheaper bonds, thanks to “credit guarantees” or “risk insurance” provided by multilateral development banks with top-tier credit ratings.
Some of the savings can then be channeled into projects that fund conservation efforts or help combat or address the impacts of climate change.
For the EIB, the two types of swaps are seen as almost interchangeable and can include both conservation and adaptation elements, as is the case in Barbados, where the plan focuses on the country’s water system.
Berndt would not specify which other countries the EIB was in talks with, but emphasized that about half of the 10 billion euros ($10.6 billion) that EIB Global lends annually goes to Africa.
“There is no regional focus,” he said, comparing the debt swap model to a global product. “But given the importance of Africa to us, it would be strange not to have an African country there.”
($1 = 0.9463 euros)