This working paper explores the business case for “debt-for-development swaps” as a financing tool to address multiple development challenges, including constraints public finances hindering investments in sustainable development against rising sovereign debt distress following COVID-19. While existing literature has focused primarily on debtor country needs, this note shifts the perspective to creditors—especially Chinese financial institutions—whose interest in debt swaps is growing amid a global rise in such transactions. It identifies the commercial and developmental incentives for financial institutions to participate, including risk reduction and return generation through buybacks and refinancing of interest-bearing debt.

This paper introduces a feasibility framework tailored to Chinese financial institutions, proposing four key criteria to guide feasibility: the relative debt share, debt type, commercial viability, and the debtor’s implementation capacity. It acknowledges the complexity and political sensitivity of such transactions, while outlining a step-by-step process for operationalizing swaps. By highlighting actionable pathways for creditor engagement—supported by credit enhancement mechanisms—this note aims to inform solutions to catalyze long-term, affordable development finance and mobilize stakeholder alignment in support of SDG-aligned debt relief and investment.