Debt-for-nature swaps could offer relief to Asia-Pacific economies facing sovereign debt crisis, say experts

July 10, 2023

The event saw speakers highlight the crucial nexus of debt sustainability, environmental protection, and the pursuit of sustainable development in the Asia-Pacific region.


The United Nations Development Programme organized a high-level event to explore strategies for developing countries to avert sovereign debt crises by investing in nature and conservation initiatives and, in turn, supporting progress on the Sustainable Development Goals (SDGs).

The risk that many low- and middle-income economies could default on their sovereign debt has increased significantly in recent years, exacerbated by a global economic slowdown following the COVID-19 pandemic.

Recent research by UNDP identified 52 developing countries with severe debt problems, 12 of which are in Asia-Pacific.

The event – organized by UNDP’s Regional Bureau for Asia-Pacific and its China Country Office – saw speakers highlight the crucial nexus of debt sustainability, environmental protection, and the pursuit of sustainable development in the Asia-Pacific region.

The event was opened by Kanni Wignaraja, Assistant Secretary-General and UNDP Regional Director for Asia and the Pacific, and featured Mariyam Manarath Muneer, Deputy Minister of Finance in the Maldives, Dr. Palitha Kohona, Ambassador of Sri Lanka to China, Dr. Zhang Wencai, Vice President, China Export-Import Bank and Jean-Marc Fenet, Minister Counsellor for Economic Affairs, Embassy of France in China.

A debt for nature swap is the process through which a developing country can reduce its debt burden in exchange for guaranteed finance for nature conservation.

On the subject of debt-for-nature swaps (DNS) speakers highlighted the importance of having all relevant ministries including those for finance and environment, as well as local communities and NGOs, to be involved.

Speaker also flagged that there are no established practices to navigate complex DNS negotiations and hence there is a need for internationally agreed mechanisms and support systems for countries.

The discussions were informed by UNDP’s latest report titled "Re(orienting) Sovereign Debt to Support Nature and the SDGs: Instruments and their Application in Asia-Pacific Developing Economies."

“Despite upward revisions to global economic growth in January 2023, many developing
economies face an uphill battle,” the UNDP report says.

“Caught between low growth and high interest rates, many of the poorest economies will muddle through but are not expected to grow fast enough to expand their fiscal space or finance transformative Sustainable Development Goals (SDG) and Paris Agreement investments in energy transitions, digital infrastructure and social protection.”

“Debt to Nature swaps have rapidly evolved over the last few years, from the Seychelles in 2015 to Ecuador in 2023. However, the swaps are yet to achieve scale and replicability. Therefore, it is important for all creditors - bilateral, multilateral and private creditors – to make up the volume,” said Ms Wignaraja in her opening remarks.  

“As countries face the dual challenges of sovereign debt distress and environmental distress, UNDP stands ready to partner and explore innovative solutions including the role debt-for-nature swaps can play in debt-restructuring and repayment,” she said.

One of the overarching themes in the discussions was the need for collaboration, knowledge-sharing and lessons learned in driving debt sustainability, sustainable finance and environmental conservation.

“Maldives gained important insights from the debt-to-nature swap deal that the country tried but did not materialize in 2020,” said Mariyam Manarath Muneer, Deputy Minister of Finance of the Maldives.

“One key lesson was that deals are inherently complex and thus need time and other expertise (both financial and non-financial) to carry out the transactions,” she said.  

“China, India, multilateral agencies, South-South cooperation and other partners play a critical role in innovating financial instruments for environmental conservation,” said Dr. Palitha Kohona, Ambassador of Sri Lanka to China.

Dr. Zhang Wencai, Vice President of China Export-Import Bank, introduced China Eximbank’s experience and practices in supporting international green cooperation and shared insights on how to bridge the financing gap for development and make development projects more effective through innovative financial instruments.

“No country should have to choose between poverty reduction and environmental conservation,” said Mr Jean-Marc Fenet, Minister Counsellor for Economic Affairs, Embassy of France in China. “Raising awareness of these innovative sovereign debt solutions like debt for nature swap instruments is critical,” he added.  

The unresolved sovereign debt crisis seriously threatens investment in social, economic, and environmental development, impeding progress towards the SDGs. In discussing options that enable developing countries to avert a crisis, panelists alluded to lessons gleaned from successful debt conversion deals, with a special emphasis on recent endeavors in Ecuador and Barbados.

Referring to the feasibility of reorienting debt for nature in Asia Pacific, Dr. Christoph Nedopil, founding director of the Green Finance & Development Center and an Associate Professor at the Fanhai International School of Finance at Fudan University in Shanghai (China) and lead author of the UNDP paper presented, stressed the important role of developing finance partners and credit enhancement mechanisms and the need to work together to explore such mechanisms with partners in the region including China.

Beate Trankmann, UNDP Resident Representative in China, made concluding remarks.

“We know there’s no one-size-fits-all answer, a common, positive reflection that emerges from our discussions is that debt-for-nature swaps could be feasible in the Asia-Pacific but they should not be seen as standalone solutions. Often, a mix of tools is needed for success,” she said.

Through this gathering, UNDP and its partners aimed to facilitate a transformative discourse that could potentially drive positive change and shape policies that will enable developing countries to continue investing in the Sustainable Development Goals.