Debt-for-nature swap to counter debt crisis
Sri Lanka, mired in heavy foreign debt, could strike a pathway which could ease pressure from creditors, while strengthening its commitment to nature conservation.
A ‘Debt for Nature Swap’ (DFNS) is being proposed by a group of Sri Lankan experts in international finance and environmental conservation who are willing to volunteer their services to guide the country in this direction.
The proposal is being floated when crucial meetings are underway with a team from the International Monetary Fund (IMF) to discuss a relief package for Sri Lanka. The country is being aided on the debt restructuring by financial and legal advisers Lazard and Clifford Chance, said to be among the world’s leading experts on DFNS. Sri Lanka’s total foreign debt is over US$50 billion.
Among large beneficiaries of DFNS worldwide are Belize (just last month), Costa Rica, Uganda, the Seychelles, Indonesia and Philippines.
On how DFNS works, one expert told the Business Times that creditors/lenders of a country agree to ‘re-structure’ a designated portion of its external debt as part of a ‘re-structuring’ and ‘re-financing’ programme. This is done if the country agrees to channel this portion of the debt for specific, earlier agreed environmental conservation projects.
The expert said that DFNS is a mechanism of overall debt restructuring under which the creditors agree to reduce the size of their claims. This would lead to a smaller debt burden, improved ability to service the debt, faster restoration of credit-worthiness and faster return to sustainable, long-term financial health for the country concerned.
The original external debt could be in the form of International Sovereign Bonds; Multi-Lateral Loans from agencies (such as the IMF, World Bank, Asian Development Bank -ADB); Syndicated Loans from international commercial and investment banks; Bi-Lateral Loans from sovereign lenders (Govt-to-Govt); and Bi-Lateral Loans from development finance agencies.
“Sri Lanka has all these instruments and thus becomes an ideal candidate for a DFNS,” the expert said, pointing out that the reduced debt amount has to be used for conservation. As it is usually converted into local currency, it gives additional improvements to long-term debt sustainability and reduces the foreign currency debt servicing burden, helps the balance of payments and protects the debt burden from future currency devaluations.
The expert explains that the funds reduced from the original debt are channelled to agreed environmental conservation projects under the guidance and monitoring of experienced, reputed international experts. With international credibility and the reputation of governance and enforcement being key to DFNS, Sri Lanka could get Conservation International (CI); The Nature Conservancy (TNC); and the Worldwide Fund for Nature (WWF) to back it on such monitoring. Here local organisations working at ground-level could be the conduit through which these experts gather information on the proper implementation of these conservation efforts.
Such funding may be used in critical spheres such as mitigating the Human-Elephant Conflict (HEC), strengthening the ‘buffer zones’ of highly vulnerable bio-diversity ‘hot spots’ such as the World Heritage-listed Sinharaja Man & Biosphere Reserve and the Peak Wilderness forests around Sri Pada and also vital watershed streams and rivers essential for hydro-energy generation and food security.
“Time is of essence. Sri Lanka should introduce DFNS into the overall restructuring framework now,” the expert says, adding that this is workable as the country has committed senior public servants at the Public Debt Office of the Central Bank and the External Resources Department of the Treasury who know about DFNS.
Hitad.lk has you covered with quality used or brand new cars for sale that are budget friendly yet reliable! Now is the time to sell your old ride for something more attractive to today's modern automotive market demands. Browse through our selection of affordable options now on Hitad.lk before deciding on what will work best for you!