Key Impact Points:
- Developing economies spent $1.4 trillion on external debt servicing in 2023, with low-income countries paying 2.3x more on interest than social aid.
- UNDP highlights Belize and Ecuador as successful examples of debt-for-nature swaps redirecting billions into conservation efforts.
- UNDP urges strong governance, transparency, and standardization to scale swaps while safeguarding credit ratings.
Debt Relief Meets Biodiversity Protection
At a key side-event during the Fourth International Conference on Financing for Development (FFD4), UN Assistant Secretary-General and UNDP Policy Director Marcos Neto emphasized the urgency of aligning debt relief with climate and biodiversity action.
“In 2023, developing economies spent a record $1.4 trillion on external debt servicing,” said Neto. “For the poorest countries, debt service costs have tripled, and interest payments have quadrupled over the past decade, reaching $36 billion.”
He noted that in 56 developing countries, interest payments now exceed 10% of revenue. In 17 of those, it surpasses 20%—a level closely tied to default risk.
“Low-income countries spend 2.3 times more on interest payments than on social assistance,” he added. “Debt is crowding out the very investments needed to achieve the Sustainable Development Goals.”
Debt-for-Nature Swaps Offer a Path Forward
Neto called for expanding debt-for-development and debt-for-nature swaps to redirect fiscal flows toward conservation and resilience-building.
“These swaps allow countries to redirect debt payments toward protecting biodiversity, restoring ecosystems, and building climate resilience,” he said.
He cited Belize’s 2021 debt swap, which cut 10% of GDP in debt and funded marine conservation, and Ecuador’s 2023 restructuring of $1.6 billion, which generated $450 million for Galápagos Islands conservation over 20 years.
UNDP has supported these instruments through pre-feasibility, structuring, and monitoring work.
“Forests, wetlands, coral reefs, and mangroves are natural capital… Yet we continue to underinvest in it,” said Neto, referencing a $700 billion annual biodiversity finance gap.
Institutionalizing Innovation with Guardrails
Neto stressed the need for robust monitoring and clear governance:
“Enhanced monitoring of debt-for-development swap proceeds is critical for transparency… Without clear governance and third-party verification, there is a risk that proceeds may be diverted or fail to deliver measurable outcomes.”
He also acknowledged the concerns around credit ratings:
“These instruments may be viewed as ‘credit negative’ by credit rating agencies, particularly if it involves a distressed exchange. It is important to balance innovation and risk.”
He advocated for the ringfencing of proceeds using use-of-proceeds bonds and aligning debt-relief mechanisms with credit rating methodologies to avoid penalizing countries for sustainable finance innovation.
UNDP Joins Global Effort
Neto concluded by commending Spain’s leadership in launching the Global Hub for Debt Swaps for Development, affirming UNDP’s commitment:
“From UNDP, we standby to join efforts to make the initiative a success.”
Related Article: Bahamas, Standard Chartered, and Partners Launch $300M Debt Conversion for Climate and Nature
Follow SDG News on LinkedIn
