By Tabora Bojang
The World Bank Group has said given The Gambia’s high public debt levels, the government can consider engaging international creditors for a possible debt-for-climate swap, an arrangement that involves cancelling a portion of the country’s debt in exchange for commitments to invest in environmental or climate related projects.
“This instrument may offer a valuable opportunity to mobilise resources for climate adaptation and ecosystem protection while simultaneously alleviating debt pressures,” World Bank stated in its Country Climate and Development Report on Gambia released last month. The report outlined that The Gambia’s current climate inflows fall significantly short and the country will require more than US$13 billion in climate financing by 2050.
It however cautioned that access to such financing must be carefully calibrated to the country’s debt sustainability and limited fiscal space underscoring the need for the country to prioritise grants and highly concessional financing, strengthen public finance management and explore innovate climate financial tools and instruments such as green and sustainable bonds, carbon markets and debt-for-nature swaps.
According to the report, The Gambia’s high vulnerability to climate change and its significant natural capital position it as a strong candidate for debt swaps which can be negotiated with bilateral, multilateral, or private creditors and can take various forms including, the redirection of debt service payments to domestic climate spending or the exchange of expensive commercial debt with concessional financing earmarked for sustainability outcomes. It disclosed that The Gambia has already received technical support to scope the potential for debt-for-climate and nature swaps as a mechanism to support the country, which is assessed to be at high risk of debt distress, in restructuring part of its debt to create fiscal space for social spending and targeted investments in climate action and nature conservation. “Focusing on leveraging concessional financing and blended instruments fits the country’s current fiscal and market conditions, given the high public debt levels and the very limited capacity of the domestic capital market,” the report said.
It however cautioned that debt swaps and other innovative instruments are complex transactions that require significant structuring if they are to be effectively implemented including strong institutional capacity in debt management, climate project planning, transparent monitoring and reporting systems, transparent governance and credible enforcement mechanisms to ensure that climate investments are delivered as intended.
