Zimbabwe explores debt-for-climate swap

Zimbabwe’s creditors are considering a debt-for-climate swap as part of a broader restructuring plan for the country’s $21 billion debt burden. This innovative financial mechanism would involve forgiving a portion of Zimbabwe’s debt in exchange for commitments to climate conservation projects.

Raul Fernandez, a UNDP project manager, expressed optimism about the feasibility of such a swap, emphasizing the need for government action and structural reforms. He highlighted the successful implementation of similar swaps in countries like Barbados, Belize, Gabon, and Ecuador.

Fernandez noted that debt-for-climate swaps offer long-term benefits for developing nations by providing financial flexibility. Given Zimbabwe’s inability to access concessional loans, writing off some debt would be essential for a successful swap.

“They need to see some action from the government, this commitment to structural reforms,” Fernandez stated. “There is that willingness, they have this on their radar.”

The proposed swap is being considered as part of Zimbabwe’s Climate Investment Plan, which aims to mobilize resources for climate action. However, it’s important to note that this plan is not a substitute for ongoing debt restructuring talks.

Zimbabwe has been grappling with debt default since 1999, leading to a significant accumulation of interest payments. In 2022, the country sought the assistance of international financial institutions to facilitate debt restructuring negotiations.

Attribution: Bloomberg