The International Monetary Fund (IMF) has said it is considering setting up a debt-to-climate swaps deal to help indebted countries cut their debt in return for protecting the ecosystem.
Kristalina Georgieva, managing director of IMF, who disclosed this during an interview with journalists at COP28, said the international institution is yet to have a clear mechanism on how the debt for climate swap deal will operate.
“Decarbonisation is very difficult for countries with high levels of debt. Climate is one problem, and debt is another problem for the same countries. We are very interested in debt for climate swaps,” Georgieva said on the sidelines of the ongoing COP28.
“What we want is to come up with key performance indicators, so countries can, if you wish, project their climate actions forward and get debt relief to fund these actions,” she explained.
“We are not there yet but we are thinking about it.” She stated that the number of countries in debt stress is relatively small, noting that the number of countries close to debt distress is significant.
“And we see that levels going up by one percent over the next few years,” she said.
According to her, the IMF makes developing countries and emerging economies much more attractive for private capital by clearing obstacles to investments and providing fiscal space so the public sector can diminish the risks of private investment.
“Lend concessional money that you can use to tell the private sector, please come. We are going to secure the conditions, whether roads or charging stations or whatever it is for private investments to take place,” she explained.
Many developing nations hit hard by the rise of global food and energy prices and struggling to balance development needs such as health and education against climate actions will get some form of respite with the proposed debt for climate swap deal by the IMF.
Also, African countries pushing for debt relief can tap the initiative to scale up additional climate funding by projecting their climate actions when the deal finally comes on board.