Gabon announces $500 million ‘debt for nature swap’
Recently, the African country Gabon has announced a debt-for-nature swap worth $500 million.
This becomes the second Debt for Nature swap in Africa after a similar agreement in Seychelles.
Debt for Nature Swap:
- Debt for nature swaps provide developing countries with high debt burdens the option of seeking help from financial institutions in developed countries to service their debt. In return, these countries have to agree to spend on the conservation of natural resources.
- Debt for Nature Swap offers opportunities to raise capital in low-income countries to address environmental and other policy challenges and support green development.
- The rationale behind a ‘debt for nature swap’ is that the debt can be obtained at a discount. When lenders don’t expect to recover the entire loan, they may be willing to accept less.
- In exchange for (partially) canceling the debt, the government of the debtor country agrees to raise an amount equal to the reduced amount in local currency for agreed purposes on agreed terms.
- Typically, banks in developed countries buy the debt of such countries and replace them with new debt that matures later. The interest rates on these are low.
- The idea of “Debt for Nature Swap” was first mooted in 1984 by Thomas Lovejoy of the World Wildlife Fund-US, in view of the Latin American debt crisis. The world’s first “Debt for Nature Swap” was a third-party deal supported by Conservation International. It was finalized in 1987.
- In this, foreign creditors agreed to forgive Bolivia’s US$650,000 debt, but in exchange Bolivia set aside 1.5 million hectares of land in the Amazon basin for conservation efforts.
- Gabon’s debt has been restructured under blue bonds in the world’s second largest “debt for nature swap”.
- It is to be noted that in May 2023, Ecuador signed the world’s largest “Debt for Nature Swap” agreement to conserve the oceans.
Gabon:
Gabon is a country located on the west coast of Central Africa. It shares borders with Equatorial Guinea, Cameroon, Republic of the Congo and the Gulf of Guinea. Covering approximately 270,000 square kilometres, it consists of coastal plains, mountains such as the Crystal Mountains and Chailu Massif, and an eastern savanna.
Source – Times of India
