Status and Trends
Total external debt stocks of developing countries and countries with economies in transition are estimated to have reached $5.4 trillion in 2012. Prudent sustainability management of external debts has succeeded in reducing the likelihood of debt crisis occurrence, but the inherent risk associated with external debt servicing cannot be eliminated by external debt sustainability. The increasing sheer size of external debts speaks to the need for preparing further measures to exploit debts for biodiversity.
There appears to be a surprise positive relationship between the global potential of delivering biodiversity and ecosystem services and accumulation of external debt stocks. Countries with higher global biodiversity potential tend to incur more external debt stocks, and every one percent increase in the global biodiversity potential may see over 0.4 percent increase in external debt stocks. This correlation is particularly strong in Latin America and the Caribbean as well as in Asia and the Pacific. It also points to the high risk of potential negative impacts of any surprise external debt shock on biodiversity and ecosystem services.
The Heavily Indebted Poor Countries (HIPCs) Initiative and the Paris Club have played a central role in the resolution of developing and emerging countries' debt problems. Since 1990, Africa has the largest number of transactions with 39 countries treated, which is followed by Latin America and the Caribbean with 19 countries, Europe and Central Asia with 12 countries, and Asia and the Pacific with 10 countries. Debt treatment agreements may include the special provisions on possibility to conduct debt swaps. UNESCO estimated that some 236 billion of debts were available for conversion as of end-2009.
The possibility for debt swap has been severely under-utilized for nature. Less than 0.2% of treated debts have ever been swapped for nature conservation or conservation funds. Africa experienced the lowest swap ratio at less than 0.07%, while Latin America and the Caribbean had the highest swap ratio of 1.32%. This difference can be partly explained by participation ratios - the proportion of treated countries undertaking debt for nature swaps: Africa had the lowest participation ratio at 27%, i.e., only 10 out of 37 potential debt swap countries realized debt for nature swaps, while 83% of potential debt swap countries in Latin America and the Caribbean conducted debt for nature transaction.
Debt-for-nature swaps can move away from forcing a reactive solution for debtors in distress, to seeking a proactive outcome of debt solution for debtors not so much deep in debt problems. The emerging trend is the reduction of external debts by committing the resultant funds to support biodiversity and ecosystem services. In August 2010, the United States of America and Brazil signed the debt-for-nature agreement that aimed to reduce Brazil’s debt payments to the United States by close to $21 million through 2015. In return, Brazil will commit these funds to support grants to protect tropical forests. Globally speaking, if governments agree to an automatic reduction of 1 percent of all external debts of developing countries and countries with economies in transition for supporting biodiversity and ecosystem services, some $54 billion may be generated as the critical mass of funding for implementing the Strategic Plan for Biodiversity 2011-2020.
Debt conversion bonds, being advocated by UNESCO, may be used to operationalize the concept of automatic reduction. Developing countries may issue debt conversion bonds against the future debt service payments of which are matched by the fiscal space created by creditors forgoing future debt service payments on loans outstanding. The proceeds from the bonds would then be used by the beneficiary government to fund biodiversity projects agreed upon with the donors.
Resources generated through debt-for-nature swapping are normally from either official development assistance, national budgets or other sources of funding, and are most likely already counted in the respective sources of financing. Double counting should be avoided in relevant financial statistics by establishing a memorandum item for debt for nature.
Ideas of Mobilization
- Information flow regarding available debt swap opportunities is facilitated, including those from debt treatment provisions of the Paris Club
- Capacity building for using debt for swap instruments is promoted, particularly in Africa
- International grant resources are used to co-finance debt-for-nature swap operations
- Debt for nature instruments are explored for those sovereign and commercial debts that are not in distress
- Debt conversion bonds are introduced to mobilize resources from outstanding debts