Barbados Debt-For-Climate Swap Breaks New Ground

  • Barbados plans to upgrade the resilience of its water systems impacted by climate change by using funds freed up by a debt-for-climate swap. The country’s recently completed debt-for-climate swap is the world’s first to focus mainly on climate resilience measures. It joins a slowly growing list of similar financial structures linked more broadly to climate and nature goals, which are backed by multilateral institutions.
  • The swap entails replacing part of Barbados’ national debt with cheaper debt, backed by multilateral institutions including the Inter-American Development Bank (IDB) and the European Investment Bank (EIB). Under the agreement, the provision of a sovereign sustainability-linked loan with a 3.25% coupon, lead arranged by CIBC Caribbean, enabled Barbados to buy back nearly US$300Mn (BBD600Mn) of its existing domestic bonds.
  • The loan was backed by guarantees, comprising US$150Mn each from the IDB and the EIB, the latter under the EU Global Gateway Initiative. Upfront funding for the resilience project, totalling US$110Mn, is being provided by the IDB and the Green Climate Fund (GCF). This includes a US$40Mn grant from the GCF, a fund set up under the United Nations climate change process.
  • Planned improvements include upgrading a sewage treatment plant into a modern water reclamation facility, which will produce water suitable for agricultural irrigation and recharging groundwater, as well as measures to reduce water losses and improve sewers, according to the institutions involved.
  • By cutting marine and groundwater pollution, the upgrades will help safeguard marine ecosystems such as reefs, and groundwater quality, as well as protect public health. The boost to water supply will also help farmers to improve productivity in one of the world’s most water-stressed countries, which relies on groundwater from aquifers for much of its supply and has to import much of its food.
  • Under the terms of the loan, Barbados has undertaken to hit targets related to the volume and quality of reclaimed water generated by the upgraded plant. If it fails to meet these requirements, the government will be subject to a financial penalty, which will be paid into the Barbados Environmental Sustainability Fund, a trust for environmental investments.

(Source: Impact Investor)