The International Monetary Fund (IMF) is contemplating the establishment of a debt-for-climate swap programme to assist debt-ridden nations, including Africa’s most populous nation, Nigeria, in reducing their financial burdens while simultaneously promoting environmental conservation efforts.
Kristalina Georgieva, Managing Director of the IMF, revealed this during an interview with media representatives at COP28, emphasising that the organisation is yet to finalise a definitive mechanism for the debt-for-climate swap initiative.
“Decarbonization poses significant challenges for nations with substantial debt burdens. Climate change and debt are two interrelated issues confronting these countries. Debt-for-climate swaps hold great promise for us,” Georgieva stated on the sidelines of the ongoing COP28 conference.
“Our objective is to develop key performance indicators (KPIs) that will enable countries to forecast their climate actions and qualify for debt relief in order to finance those actions.
“We haven’t reached that stage yet, but we’re actively considering it.”
Georgieva highlighted that the number of countries experiencing debt stress is relatively small, but the number of countries on the verge of debt distress is significantly higher.
“We anticipate a one percent increase in these levels over the next few years,” she remarked.
The IMF, according to Georgieva, enhances the attractiveness of developing nations and emerging economies for private capital by removing investment barriers and providing fiscal space, allowing the public sector to mitigate the risks associated with private investment.
“We offer concessional loans that can be used to entice the private sector to invest. We will create the necessary conditions, whether it be roads, charging stations, or whatever else is required for private investment to materialise,” she explained.
The proposed debt-for-climate swap initiative by the IMF will provide some form of relief for numerous developing nations that have been severely impacted by the rise in global food and energy prices and are struggling to balance development needs in areas like healthcare and education with climate action efforts.
Additionally, African nations seeking debt relief can leverage this initiative to increase climate funding by outlining their climate initiatives once the deal is finalised.