Barbados Completes World’s First ‘Debt-for-Climate’ Swap

Shea Woodrow 4th December 2024

Barbados' capital city Bridgetown on May 28, 2023. Xin Yuewei / Xinhua via Getty Images — Barbados’ capital city Bridgetown on May 28, 2023.
Xin Yuewei / Xinhua via Getty Images

Barbados has secured the world’s first “debt-for-climate” swap to finance crucial water and sewage projects that will help the island cope with the destructive impacts of climate change.

Through a deal with international funding partners, the Caribbean island nation was able to replace outstanding debt with less expensive financing, which generated a savings of $125 million to be used to increase food security while enhancing water resources management, a press release from the European Investment Bank (EIB) said.

“In the face of the climate crisis, this groundbreaking transaction serves as a model for vulnerable states, delivering rapid adaptation benefits for Barbados. With upfront funding from our partners, we are building a state-of-the-art facility to boost water management, food security, and resilience — showcasing how innovation and cooperation drive environmental and fiscal gains,” Prime Minister Mia Mottley said in the press release.

Countries have been embracing more debt swaps in order to make investment funds available for nature conservation projects, Reuters reported.

The deal sets a climate adaptation financing benchmark, those involved said. It avoids the increasing public debt burden while helping to meet the nearly $360 billion annually the United Nations has said is necessary to assist developing nations with adapting to climate change.

Water availability in Barbados for farming and other activities is far below the global average.

Mottley’s Bridgetown Initiative calls for international financial institutions such as the World Bank to make ever increasing challenges like high debt levels, slower growth and climate change a priority.

Barbados plans to improve its water supply and security by building a New South Coast Water Reclamation and Reuse Facility to provide more than twice the available water by 2050. Additional funding will be put toward mangrove conservation, agricultural resilience and water restoration.

The Green Climate Fund (GCF) and Inter-American Development Bank gave $70 million in loans to start development. An additional grant of $40 million was also provided by GCF.

Through the deal, Barbados was able to buy back nearly $300 million in domestic bonds using a loan provided by Scotiabank of Barbados, RBC Royal Bank and CIBC Caribbean Bank. The loan includes sustainability performance targets which must be met or the government will be subject to financial penalties. The loan is backed by $150 million each from the Inter-American Development Bank and EIB.

“Barbados’ initiative enhances climate resilience and sets a benchmark for sustainable adaptation for the Caribbean. CIBC Caribbean is honored to again collaborate with the Government of Barbados and multilateral agencies like the IDB and EIB in setting precedents for innovative financial mechanisms that drive environmental stewardship in our region. This partnership underscores our commitment to accelerating climate action and fostering sustainable development across the Caribbean,” said Mark St. Hill, chief executive officer of CIBC Caribbean, in the press release.

Part of the European Union’s Global Gateway project, the guarantee from EIB is an attempt to attract countries from the Global South that have been relying on China’s Belt & Road Initiative for infrastructure funding.

“Debt-for-climate conversions can support responses to two overlapping crises: constraining debt and the escalating climate emergency. The Green Climate Fund is a proud partner of Barbados in bringing a coalition of financiers together, all backing an innovative financial instrument aimed at helping the island nation achieve its development and climate goals,” said Mafalda Duarte, executive director of GCF, in the press release.