Last year, Sri Lanka was plunged into economic crisis. As the country struggles in the aftermath of its sovereign debt default in April 2022, officials have said they are considering a debt-for-nature swap. If this happens, this would remove USD 1 billion from Sri Lanka’s outstanding USD 40 billion of debt.

With Ecuador having earlier this month completed the world’s biggest debt-for-nature swap to date, taking roughly USD 1.6 billion off its national debt, these deals look set to play a bigger role in dealing with both debt burdens and biodiversity conservation.

Being home to some of the world’s most important biodiversity hotspots, South Asian countries, several of which are struggling under the weight of their debt, could benefit from these innovative schemes.

How do debt-for-nature swaps work?

A debt-for-nature swap can be multi-party or bilateral. The most common form of multi-party debt-for-nature deal is when a third-party institution – usually an international non-governmental organisation such as Conservation International – buys part of a country’s external debt from the institution that had bought it initially, often at a discount. That organisation then agrees to let the debtor country pay the debt off by investing a certain amount of local currency – usually significantly less than the face value of the original debt – in a biodiversity conservation plan.

In a bilateral deal, a country which owns some of another country’s debt agrees to discount it in exchange for the debtor country investing an agreed amount in a conservation plan. This frees the indebted country from having to pay off some of its debt in US dollars ­(which international debt is paid in), and it can instead invest its own resources to preserve its biodiversity.

Read the full article about debt-for-nature swaps by Omair Ahmad at Eco-Business.