Debt-for-nature swap

Why in news?

• Under the debt-for-nature swap, Gabon has agreed to a deal with the Bank of America, the US International Development Finance Corporation (USDFC) and The Nature Conservancy (TNC), to refinance $500 million in national debt toward marine conservation efforts in the country.

About Debt-for-nature swap: 

• What it is? It allows heavily indebted developing countries to seek help from financial institutions in the developed world with paying off their debt if they agree to spend on conservation of natural resources.
• The notion of debt-for-nature swaps was first mooted in 1984 by Thomas Lovejoy, the former vice-president for science at the World Wildlife Fund-US, in response to the Latin American debt crisis.
• The first debt-for-nature swap was a third-party deal facilitated by Conservation International. Finalised in 1987, it involved foreign creditors agreeing forgive USD 650,000 of Bolivia’s debt in exchange for the country setting aside 1.5 million hectares in the Amazon Basin for conservation efforts.

What are the benefits?

• Debt-for-climate swaps provide benefits for both creditors and debtors.
• Creditors can advance their development cooperation and climate finance goals, improve their chances of debt recovery, and strengthen their diplomatic ties with debtor nations.
• Debtors can reduce their external debt and debt service obligations, allocate fiscal resources towards other development priorities, promote climate action through domestic investment.

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Q1) What is Climate finance?

Climate finance refers to the funding and financial resources that are allocated to projects, initiatives, and activities aimed at addressing climate change and its impacts. It is a critical component of global efforts to mitigate and adapt to climate change, as it provides the necessary resources to implement strategies and solutions that can reduce greenhouse gas emissions.

Source: Gabon announces $500 million debt-for-nature swap deal for marine conservation