Belize, a tiny Caribbean state, has announced it will use its natural resources to curb its indebtedness. The country which is known for its Barrier Reef, the second-largest expanse of coral in the world with thriving biodiversity, has witnessed a sharp increase in its public debt from under 100% of GDP to over 125% in 2020. In an attempt to resolve this issue, Belize has turned to blue bonds, committing to protect its ocean waters.
Pandemic-triggered economic downturn
Belize has one of the most biodiverse natural wealth in the world. Its Barrier Reef is full of turtles, manatees, sharks, and other species that are in danger of extinction, and every year it attracts thousands of tourists. Before the pandemic, tourism accounted for 40% of Belize’s economic activity. However, the sharp drop in tourism last year increased public debt from under 100% of GDP to over 125%.
Belizean debt-for-nature swap
This economic downturn has forced Belize to seek ways to reduce indebtedness using its natural potential. On November 15, Belize bought back its only international bond worth US$553 million at a price of about 55 cents on the dollar. This allowed the country to reduce its external debt by 9%. To repay bondholders, Belize benefited from a US$364 billion blue bond arranged by Credit Suisse bank and Nature Conservancy, an NGO supported by the US federal International Development Finance Corporation. In exchange, Belize has committed to implement a series of marine conservation projects and direct savings towards a marine conservation fund and will pay back the bond in 19 years. Within the deal, Belize is required to invest US$23 million in endowments that support future marine-conservation projects and must promise to protect 30% of its waters by 2026.
More climate actions, more debt-for-nature swaps
The United Nations Development Programme assessed that the total value of debt-for-climate and nature-swaps between 1985 and 2015 was US$2.6 billion. Thirty-nine debtor nations benefited from those swaps but only 12 of these negotiated debts of more than US$30 million.
As concerns, the blue bonds, the process of securing these had until recently been a rather lengthy one. This time, Belize needed 1.5 years to finalize the swap whereas a similar previous deal reached by the Seychelles took four years to restructure US$21.6 million of debt involving the Paris Club as creditors.
As climate issues are becoming more urgent, creditors are also willing to shorten the process. Moreover, as the issues of environment protection and climate change have become increasingly pressing, such swaps are also becoming more and more popular and the number of indebted countries willing to benefit from these has been on the rise. At the latest global climate conference, COP26, Guillermo Lasso, the President of Ecuador, offered to enhance the natural reserves in Galapagos in exchange for a debt-for-nature swap. The Nature Conservancy is also negotiating similar deals with other developing countries.
