Faced with large debts and a need to borrow to invest in the environment and infrastructure there is growing interest in debt-for-development swaps to stop the financial merry-go-round, writes Susan Lado.
In 1987, Conservation International facilitated a deal with Bolivia to allow the nation-state to reduce its debt while protecting its rainforest. A debt-for-nature swap, as it was called at the time, allowed for a legally binding agreement between a debtor (usually a country) and a creditor (typically a multilateral organisation or another country) where the creditor writes off parts of the debt to free up an equivalent amount of funds that must be used for a selected project in the debtor country.
Modern applications of the concept include debt-for-education, debt-for-health, and debt-for-development, covering a broader scope of initiatives and projects for which debt can be swapped. The World Bank and the International Monetary Fund incorporated debt-for-development into their Heavily Indebted Poor Countries (HIPC) Initiative. Several key factors continue to make these swaps relevant and attractive for meeting the challenges of debt burdens faced by struggling economies today.
There has been a resurgence of debt-for-development swaps. In 2023, in the wake of the Covid-19 pandemic, global public debt reached £78 trillion, a number never seen before in the history of public debt. Indebted countries are spending heavily on interest, and not borrowing in their local currency, which increases costs further. As a result, developing countries are spending more to borrow than developed countries, and a record 54 developing countries spent at least 10 per cent of government revenue on interest payments, which, for some, is more than what they spend on health or education.
These debt burdens cannot continue to follow the current trends. Creditors cannot simply write off the debt because it sets a bad precedent for future borrowing and results in significant financial losses for creditors, including multilateral institutions, private lenders, and governments. It is in this context that debt-for-development swaps present an innovative solution for creditors and debtors that could also meet the pressing needs of tomorrow.
Some African countries started phased debt swaps in the 2000s, with the written-off debt devoted to projects explicitly linked with poverty alleviation (Egypt), infrastructure development (Cameroon), marine conservation (Seychelles), tropical forests conservation (Cameroon and the Congo River Basin) and education (Cameroon and Cote d’Ivoire). These projects now fall under the broader umbrella of sustainable development goals, which are currently at the centre of recent debt swap conversations. As climate consciousness rises, these swaps have increasingly channelled resources for climate action, conservation and environmental projects.
These swaps have been implemented in several ways with varying timelines; however, the core elements that are involved in every debt-for-development swap are as follows:
The creditor agrees to write off the repayment of a particular debt in exchange for specific actions by the debtor.
The debtor country commits to spending the equivalent of the written-off debt amount on a specific project that aligns with national priorities and internationally agreed goals (e.g., SDGs).
The swap is formalised in a contract or treaty, which explicitly details the debt amount, the nature of development investments, and monitoring mechanisms.
Regular reports, audits, and evaluations, including independent oversight (by civil society actors or non-governmental organisations), are scheduled to monitor progress and hold debtors accountable.
Although these core elements are straightforward, determining countries’ eligibility for the debt-to-development swap, instead of other debt management approaches has been the subject of much discussion.
Other issues with implementation include (i) the limited scale as many swaps targeted small debt amounts earmarked for only specific sectors, leaving the debt burdens almost unaffected, (ii) lack of clear benefits to creditors beyond goodwill and alignment with international policy, (iii) ineffective project design, execution and monitoring systems, (iv) heavy reliance on swaps, leaving systemic economic vulnerabilities unresolved, and (v) exclusion of private creditors. To address some of these challenges, a policy paper published by the IMF in 2024 recommends some decision-making steps to follow when initiating debt-for-development swaps (see Figure below).

The decision tree attempts to visualise the considerations before initiating any debt-for-development swap. The policy paper also drew attention to applying softer, more flexible practices (especially in earmarking funds for specific sectors) and focusing on spending for specific outcomes (e.g., increased education enrolment or reduced deforestation metrics) rather than meeting agreed sector inputs. Funds freed up through debt swaps are often kept separate from countries’ public finances or budgets and spent through standalone and strictly controlled Special Purpose Vehicles or trust funds. However, these new recommendations emphasise that these funds should be non-earmarked and integrated into public spending budgets, and used according to the country’s development strategy while maintaining accountability.
Even as the finer details of debt-for-development swaps are ironed out, they undoubtedly hold potential for African states facing multiple crises, including climate vulnerability and economic fragility. With over 54 nations on the continent, each with unique needs and development priorities, tailored swaps could unlock resources for projects that, expand renewable energy infrastructure, protect biodiversity hotspots, or enhance public health systems. However, as the new year begins, it is also worth asking what these swaps would look like if African states negotiated them collectively as a regional bloc rather than on individual terms.
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