countries into three groups based on their risk of fiscal crisis in the next two years. In light of these links, debt-for-climate swaps have been proposed as an instrument that can help countries deal with both climate and debt problems at the same time . Picolotti and others (2020) call for the scaling-up of debt swaps as a means to support countries in building climate resilience and support their post-pandemic recovery. Steele and Patel (2020) argue for debt swaps benefiting spending programs rather than projects, that is, spending on climate resilience
Copyright Page © 2022 International Monetary Fund WP/22/162 IMF Working Paper Strategy, Policy and Review Department Debt-for-Climate Swaps: Analysis, Design, and Implementation Prepared by Marcos Chamon, Erik Klok, Vimal Thakoor, and Jeromin Zettelmeyer Authorized for distribution by Ceyla Pazarbasioglu August 2022 IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate . The views expressed in IMF Working Papers are those of the author(s) and do not necessarily
Challenges for Sub-Saharan Africa,” IMF Staff Climate Note 2022/009, International Monetary Fund, Washington, DC. ISBN: 979-8-40022-159-0 (Paper) 979-8-40022-166-8 (ePub) 979-8-40022-340-2 (PDF) JEL Classification Numbers: F34; F35; G22; H63; Q28; Q54; Q57 Keywords: Climate finance; sub-Saharan Africa; climate change; mitigation; adaptation; concessional finance; green bonds; blue bonds; sustainability bonds; debt for climate swaps; carbon credits; climate insurance; climate funds; forest conservation; green development Authors’ email
countries risk defaulting on their Nationally Determined Contributions, current or enhanced. The road to walking the talk on the Paris target on finance starts with making sure these countries are the primary beneficiaries of any new issuance of Special Drawing Rights (SDRs) and that they secure a significant share of those proceeds for climate action. A second stepping stone is a comprehensive, all-hands-on-deck debt restructuring for the most affected countries to help them advance green solutions to their problems, through such instruments as debt-for-nature and debt-for-climate
the detailed selective issues paper on the fiscal framework. Work is ongoing to recalibrate the fiscal strategy and strengthen the legislation surrounding fiscal responsibility, public financial management, and debt management. In particular, the suite of Acts will be amended to increase flexibility, enhance transparency, and improve operational efficiency. The authorities are also keen on exploring opportunities to monetize carbon credits, issue resilient debt, and leverage debt for climate swaps. They have reached out to staff to determine technical assistance
swaps. This instrument restructures debt and applies the resulting savings towards spending exclusively focused on climate (for example, debt-for-climate swaps) or with a development component (for example, debt-for-development swaps). The restructuring can include conversion to local currency (reducing foreign exchange risks), a lower interest rate, an extended maturity, partial debt write-off, bond issuance or some combination of these ( Chamon and others 2022 , Steele and Patel 2020 ). Debt relief or cancellation. In these cases, the debt write-off is tied to
potential returns on such investment is warranted, particularly given its relatively high levels of capital stock. A second question is how climate change will impact different exporting sectors of the economy. This could include how commodity prices would respond to climate-related supply shocks. Third, is how the response to climate change will be financed. Models like the investment needs model assume debt financing, but drawing precautionary savings built up or financial innovations (e.g. debt for climate swaps), might unlock lower cost financing. Finally, the impact