Debt Conversions for Climate Adaptation in Small Island Developing States

About

Small Island Development States are highly vulnerable to the various impacts of climate change. However, extremely high public debt ratios impede these countries’ abilities to invest in ecosystem-based adaptation to climate change actions, such as modifying infrastructure and nature-based solutions to improve coastal and flood protection.

The goal of this project is two-fold:
• First, to facilitate the transaction of donations and investments aimed at ecosystem based adaptation to climate change as well as biodiversity conservation in the marine and coastal realm. Protecting the “blue economy” of island states will ultimately reduce vulnerability of both marine ecosystems and the economy as a whole (e.g. through sustained fishing grounds and tourism).
• Second, to provide highly indebted countries with an innovative financial tool to restructure their debt and thus allowing for debt relief as well as securing capital flows for investments into ecosystem based adaptation to climate change activities.

In its essence, the proposed debt swap is a conversion of a Small Island Developing States external hard currency debt for an internal partial local currency debt. The swap is financed via a mix of grant funds and investment loans used to purchase and retire sovereign debt of Small Island Developing States. The cash flow from the restructured debt, managed by a newly created public-private trust fund, will fund three distinct streams, one to repay investors, one to capitalize a trust fund endowment and one to fund work on the ground around ecosystem based climate adaptation and disaster risk reduction.