COP28 - Debt swaps are not an effective instrument for reducing debt levels, says new research


Eurodad launches a new briefing questioning the impact that debt swaps have in debtor countries. 

Today, at COP28 the world's top multilateral development banks and other institutions have announced a new global taskforce to scale up debt-for-nature swaps. However, new analysis from the European Network on Debt and Development (Eurodad) questions the impact such debt swaps are actually having in debtor countries. 

The new briefing, which traces the development of debt swaps over the last 30 years, finds that they have not been a means to restore debt sustainability, and cannot be a substitute for a comprehensive debt restructuring, including debt cancellation.

“Today a new task force to support private creditors de-risking in debt-for-nature swaps is being created at COP28, which makes it appear these complicated financial instruments are a silver bullet for solving the enormous debt crisis faced by so many countries in the global south. Instead, our briefing warns that they tend to be slow, complex and costly, and are no substitute for comprehensive debt cancellation and the delivery of debt-free climate finance,” says Iolanda Fresnillo, Policy and Advocacy Manager for Debt Justice at Eurodad.

While the recent debt-for-nature swaps in Barbados, Belize, Ecuador and Gabon have been presented as the future of debt swaps, as a means of both generating resources for ocean conservation and tackling sovereign debt problems, these instruments are far from an easy fix. 

The briefing points out that debt swaps don’t become more impactful just by scaling them up. Impact instead rests on ensuring a sustainable and realistic schedule for the borrowing country to disperse the freed-up resources, that these disbursements are made in the local currency, and other elements determining the governance, transparency, accountability and transaction costs of the operations. To do otherwise, as the briefing warns, would add additional pressures to an already constrained fiscal space.

“For countries without access to grants or concessional finance, well-designed debt swaps can play a role in mobilising extra funds for the Sustainable Development Goals or climate projects. When the priorities of the impacted communities, not those of the creditors, are at the forefront and these communities are given space to participate from the early stages, then funding local projects via debt swaps can have a positive impact. Without this, the inherent conditionality of debt swaps runs the risk of a loss of sovereignty for debtor nations." notes Fresnillo

As the end of 2023 approaches, 136 countries are  considered to be in a critical debt situation. However, debt swaps are not a silver bullet. Fresnillo said: “This week’s announcements must not detract attention from the urgent need for fundamental reform of the international debt architecture, including establishing a timely, transparent, rules-based and comprehensive sovereign debt resolution mechanism under the auspices of the United Nations.”


Media contact: Mary Stokes, Senior Communications Officer - +32 491 14 66 56 / [email protected]

Notes to editors