The EU and debt-for-climate swaps: Geopolitical ambitions and development impacts

With the expansion of debt-for-climate to Africa, Karim Karaki and San Bilal provide concrete options for a possible European approach to engage in commercial swaps, as a means to achieve development and environmental impact and strengthen the geostrategic positioning of the EU.

Debt swaps, a financial transaction where creditors forgive a portion of a country’s foreign debt in exchange for investment in sustainable development, are praised as one of the innovative solutions to provide additional resources to support developing countries.

So far, the implementation of commercial debt-for-nature swaps has been largely led by the US and the Inter-American Development Bank, with transactions taking place in the Latin America and Caribbean (LAC) region. With the expansion of debt swaps to Africa (see the example of Gabon), there is merit in understanding and analysing why and how Europe could position itself in this field based on its current institutions, assets and instruments. The paper provides concrete options on a possible European approach to engage in commercial debt-for-climate swaps, as a means to achieve development and environmental impact and strengthen the geostrategic positioning of the European Union.

About the Authors

Karim Karaki is the head of ECDPM’s economic recovery transformation team. Prior to joining ECDPM, Karim worked as a senior advisor for PwC Luxembourg’s public sector advisory practice, providing advice to multilateral and EU institutions and specialising in public policy analysis and evaluation, with a focus on EU funding. He also previously worked as a policy analyst for various organisations, including the European Investment Bank. From 2015-2018, Karim also worked as a policy officer for ECDPM.

Dr San Bilal is a senior executive and associate director of ECDPM’s sustainable economies and climate action cluster. He is also a member of the management team.