Sri Lanka exploring debt-to-nature swap deal up to US$ 1 billion: news report

Sri Lanka is in the midst of exploring a debt-to-nature deal of up to US$ 1 billion, along with Cpe Verde and Ecuador, a media report said.

 Sri Lanka is discussing a deal of up to US$ 1 billion, reported Reuters quoting people familiar with the discussions.

 A debt-for-nature swap involves purchasing foreign debt, converting that debt into local currency, and using the proceeds to fund conservation activities. 

 The key to the transaction typically lies in the willingness of commercial banks or governments to sell debt at less than the full value of the original loan.
 Ecuador and Cape Verde are looking to refinance US$ 800 million, and US$ 200 million in this manner.  If Sri Lanka’s negotiations come through, the island nation would have under its belt the biggest debt-for-nature swap struck to-date. 

 The Sri Lankan government is yet to make an official comment in this regard.
 Earlier this year in June, the United Nations Development Programme (UNDP) proposed to the Sri Lankan government to make use of debt-for-nature swaps which would allow a portion of the government’s large debt burden to be forgiven in exchange for the implementation of environmental policies or funding of conservation programmes.  The agency said if effectively implemented, the debt-for-nature swaps have the potential to provide long-term credit benefits by offering debt relief while increasing investments that could bolster Sri Lanka’s resilience to environmental risks.

 As of 2016 (latest data available), Sri Lanka’s carbon footprint is about 18 million tonnes, accounting for 0.05 percent of the global share. The CO2 emissions per capita in Sri Lanka are equivalent to 0.88 tons per person.  At the recently held COP27 summit in Egypt, the International Monetary Fund (IMF) said it wants to see more debt-for-nature and swap deals.
 “There’s now a big push to get nature into sovereign debt markets,” Reuters quoted Simon Zadek, Executive Director NatureFinance, which advises governments on debt-for-nature swaps and other types of climate-focused finance, as saying.