Barbados is doubling down on debt-for-nature

Barbados is pursuing a ‘debt-for-nature’ swap worth around $300M to improve the island nation’s water infrastructure, according to Reuters.

As the name suggests, ‘debt-for-nature’ swaps have two aims: conservation and debt management. Here’s one example of how they might work:

• 💰 A lender agrees to forgive some debt, and in return…
• 🌺 The borrower country uses the money it saves to invest in conservation projects.

Why would lenders do this? Often it’s a way to bring a borrower’s debt back onto a more sustainable trajectory, rather than go through a costly restructure. It can also count towards a lender’s environmental commitments.

Intrigue’s take: Barbados pulled off a successful debt-for-nature swap last year to support marine conservation, but this new proposed swap is a bit different with its water infrastructure focus.

So if this new swap goes well, we can imagine it becoming a model for other countries looking to alleviate their own debt burdens and build more (and more sustainable) public infrastructure.

Also worth noting:

• In May, Ecuador closed a record swap worth around $1B, which it plans to use to protect the ocean around the Galapagos Islands.
• A scientist at the World Wildlife Fund came up with the idea for ‘debt-for-nature’ swaps in a short New York Times op-ed in 1984.