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Aerial view of fishing village in Honiara, Solomon Islands
An aerial view Honiara that hit the Solomon islands (Honiara) fishing village. Image: Atmotu Images/Alamy photo gallery.
15 February 202113:37

Reading: China can use the "debt conversion" help developing countries cope with climate change

Hongqiao, Liu,


Hongqiao, Liu,

15.02.2021 | also PM
Translations Reading: China can use the "debt conversion" help developing countries cope with climate change

This week, the two independent research team from the China and the United States called for China to implement the "debt exchange", in which developing countries to strengthen the conservation of nature and climate adaptation and mitigation.

The researchers concluded that through such debt exchange, China not only can alleviate the rapid spread of debt troubles between developing countries, at the same time, it can deeply trapped by climate change and environmental degradation vulnerable countries to provide valuable financial support.

"Three win"plan

The first itemresearchTitled "" debt is a natural transformation" is "in" debt sustainability and biodiversity financial "three win" solution?"The policy of presentation.The study byCentral university of finance and economicsGreen finance institute of international "Green area along the initiative Center" (IIGF Green BRI Center).

WeChat concern on the carbon bulletin

, according to the briefing as a creditor, if China can and "area" on the debtor countries to carry out the "debt nature transformation" (debt - to - nature swap), may be able to bring a "win-win-win" situation."In all the way"Is an initiative by China in 2013, is for the purpose of investment in infrastructure projects in developing countries, is now gradually covered a total140 countries.

The researchers found that debt conversion is a natural can solve three serious challenge "important tool" : one is the firm's current debt crisis in debt sustainability, 2 it is to support the outbreak eraGreen recoveryThree is to promote long-term sustainable development.

Naturally shifting debt is not a new lift.The concept first in 1984 by the world wildlife fund (WWF), then vice President is put forward.itsFor the first timeBe born in 1987, based onBoliviaThe government andConservation international,(CI) is an agreement between a (the latter is a non-governmental organization in the United States).

agreementConvention, conservation international, a discount of $100000 to buy the country's $650000 foreign debt;In exchange, the Bolivian government to open up in three reserve "buffer", a total of 1.5 million hectares.

So far, at leastMore than 30 countriesImplement a debt natural transformation,The main focusIn Latin America and the Caribbean countries.According to data from the United Nations development programme (UNDP), a total of2.6 billionOf dollars in debt restructuring, in such a manner to the debtor protection into the project1.2 billionDollars.

"Infrastructure spending growth, superposition of the new champions league outbreaks, natural transformation to debt provides new opportunities, especially in the area along the countries'", said the policy brief.

The An next installment of debt - for - nature swaps - Chinese
Schematic diagram of natural transformation "debt".Through debt restructuring, the creditor can sell debt at a discount to independent environmental trust fund and to gain something in return, while the trust will provide money for the local conservation project, debtor governments will be under the terms of the restructuring of the trust fund to pay interest to the environment.International non-governmental organizations and other common investor can also be injected extra funds to the environmental trust fund.Sovereignty bilateral creditor nations, the world bank and the monetary fund (IMF) and other multilateral development Banks and private creditors had such debt conversion.Source: IIGF green "area" center (2021).

Along the "green" area initiative, the director of the centerWang ke liDr (Christoph Nedopil Wang is a co-author of the study, he told the bulletin of carbon:

"Debt nature is converted to solve debt problems provides a completely different way of thinking.Unlike debt relief, it can ensure creditor to recover some of the money, also can be avoidedThe risk of moral hazard.It is also different from the "debt-to-equity swap" (debt - for - equity) or 'debt exchange (debt - for - resources swap) : both lead to assets seizure, thereby limiting future development of the debtor;Natural transformation and debt guarantee will originally applied to repay the debt funds to protect the local environment in the project.A long-standing challenge, however, is that how to determine which countries apply to debt conversion nature."

Draw the outline of the potential

The secondresearchPublished in the journal science, titled "China can help solve debt and environmental crisis", the author from Boston universityThe global development policy center.The Dr Wang ke li just the response for the study of the above questions.

The global development research center of the researchers designed a analysis model to analysis the debtors "implement the outlook for the debt exchange with China".Value the model for the first time in the "credit" and "cost of implementation and administration of" two normal standards, into the debtor risks of climate change and/or threat to biodiversity.

The study identified several most likely such debt with China's successful transformation of countries, including Laos, Uganda, Ecuador (see below).

China - debt - swap - potential - the map
The picture shows in China the largest country in the "debt burden", "most promising" to carry out the "debt nature transformation" and "debt climate transformation" of the country.According to the various countries' in the face of climate change and/or threat to biodiversity, and the opportunity to implement debt conversion, countries to engage in "debt nature transformation" and "debt climate transformation" relative potential markers of 0 to 3, and matches by color (as shown in the left side of the matrix).Shown in monetary value for 2020 countries for China's biggest debt and due payments.Above does not include debt pressure for China's smaller countries (light gray).Source: Simons et al. (2021).

The study lead author and the global development research center, postdoctoral researcherAlexander Blake simmons (Blake Alexander Simmons) think, "opportunity" is the main contribution of this study.

Specifically, the study calculated the renewable energy investment spending (and existing under the Paris agreement"National independent contribution (NDCs)"Relevant) accounts for the proportion of" GDP "(GDP), in order to measure the" political will ".Political will is higher (above 5.5%), and thinks that to carry out the "debt climate transformation" (debt - for - climate swap) the higher the "opportunity".

The study found that debt climate transformation, Senegal, Sudan and Zimbabwe potential.These countries carbon emissions is higher, highly vulnerable to the effects of climate change, "political will" also very strong (renewable energy investment accounted for 15% of GDP to 39%).

"Natural capital" is the key to the "debt nature transformation".research人员认为,“成功机会”体现为开展自然保护项目(特别是防止森林退化项目)可带来的潜在影响。一个国家未受保护的自然栖息地越多,则认为开展债务自然转换的潜力就越高。

Studies suggest that Angola, Cambodia, Burma, and the Solomon islands (marked purple in the picture above) is the "most promising" to carry out the natural transformation of national debt.In particular,Angola: the country's debt problems (a total of $29.6 billion, equivalent to 31% of GDP), protect the original ecological habitats (nearly 91% not damage areas in urgent need of protection) and reducing the loss of forest (the country lost since 20005.2%The forest) has huge potential.

In addition, the researchers suggested in Fiji and Togo and other small country to carry out pilot projects.Taken together, the two countries' carbon footprint smaller, saved a large number of endangered species, in addition to the protection of natural habitats, the two countries to conduct such debt conversion risk is extremely low.

From a consensus

The above two studies under debate for today's discussion provides a new conversation: "green recovery" in post outbreak era, under the tide of how to look for to solve debt three crisis, climate change and biodiversity, this new solution?

In September 2020,The international institute for environment and development(IIED) in the first placeproposedWith debt exchange to solve after the outbreak of the era of debt, climate and natural loss problem.

Then, in November 2020,Germany's foundation(Heinrich among Foundation.)School of Oriental and African studies, university of London sustainable financial centerandThe global development research centerIssued a policy proposal, to further expand, urged global public-private sector, multilateral institutions and other creditors "debt climate transformation" or "debt sustainability transformation" (debt - for - sustainability) for debt relief reform framework "of one of the three pillars.

The United States, a think-tank,The world resources institute(WRI) launched a similarproposed, the initiative into the dimension of "health", to carry out the "climate - health - debt conversion".

All of these different versions of "debt swap" essentially all have one thing in common: they are for the debtor offers a chance for "green development", rather than make its trapped in debt, into insolvent, is unable to protect natural or carry out the work of climate adaptation and mitigationA vicious cycleIn the middle.For example, in 2020, with GDP decline in Fiji4.9%And the government on climate project funding is reduced32%.

Carlos rhea(Carlos Larrea) is Ecuador, Simon Bolivar university of the andes, (Universidad Andina Simon cases), a professor of social research.He was not involved in the study, but think Ecuador should begin as soon as possible talks about debt in climate transformation, and natural transition.

"We very dangerous situation, it is not confined to the economic crisis", he told the bulletin of carbon."We talk about save the amazon rainforest.If you don't take action, it will be50 yearsIn disappear.We need to immediately start negotiations."

Earlier this month, the global 23 former central bank governor and the chancellor of the exchequer, jointly issuedThe statementSupport the aboveJoint policy proposals"Debt relief reform framework".They said:

"Many developing countries are forced to take out 30% to 70% of government revenue in order to repay the loans of international debtor, to care more big goal...Now is not the nation state was forced to at the expense of their own people and the future, to repay is mostly caused by uncontrollable factors of high debt.It will only let us spend on climate change and sustainable development of the joint efforts of the ground to a halt."

Ulrich wahlDr (Ulrich Volz) was the founder of the school of Oriental and African studies, university of London sustainable financial center, is also the foregoingJoint policy proposalsThe first author.In the email communication with the carbon bulletin, he emphasized the last outbreak of the era of "green recovery" in the urgency of the natural transformation using debt:

"' new champions' outbreak cruelly shows that we need to strengthen the economic and social resilience, which strengthened the environment and climate challenge" urgent "."

The global development research centerDr SimmonsOf sustainable development of the debt swap as a "creative".He said, from habitat protection to low carbon infrastructure, all "Solution" based on natural (Nature - -based Solution) can be applied to such debt exchange.

Easier said than done

The center of the green area along the initiativeresearchDebt exchange shows that will not be easy.For example, before the beginning of the real debt exchange, the negotiation process between the multiple stakeholders is likely to continue2 to 4 years.This led to a high transaction cost;If meet the leadership transition, but also may be disqualified.

Another challenge is that compared with many other financial instruments, debt exchange for two countries to practice long-term financial commitment.

"This agreement unable to repay short-term debt.Global institute of development research centerRebecca rayDr (Rebecca Ray) told the bulletin of carbon.She is the second study co-author.She added:

"Long project cycle, however, is not necessarily a bad thing.Because, to ensure that the final project will not do extra damage to the environment, conform to the debtor as a top priority of government environmental priorities, it is very important."

Dr Ray said any creditor when the creditor or realized that "the money may not be returned, debt exchange may become" especially attractive ".In her opinion:

"Once you] [creditors realized" plan A "useless, so relative to indefinitely extend loans, look forward to one day party [debt] payments, exchange as A" plan B "debt becomes attractive.It provides a convert debt obligations into new cooperation opportunities between creditors and debtors, for both sides to lock a greener and more sustainable and more stable development path."

Dr Wang ke li said the challenge is to "be born".He also said: "to be successful, the design and implementation of both balance, transparency and efficiency of the method is very important."

Dr Volz reminds, dealing with the "green" risk alert, especially in the absence of clear supervision and regulation.

"Is more important than the label, the actual action is meaningful, otherwise it will become a 'floating green behavior."He told the bulletin of carbon.

A senior fellow at the institute of natural sustainable financial centres of the worldverylsIs the"Climate - health - debt conversion idea.The co-authors.In view of the past has quite a few examples of successful debt natural transformation, she hopes to start in the second half of the year the first negotiations.She said:

The "bilateral political will from the creditors and debtors is crucial.After all, had no reached the current scale of the debt crisis once natural transformation using debt."

Veryls also said that in order to further foster dialogue, still need to coordinate the integration of scattered in the conversation between different government departments.In other words, should let debt policy and responsible for the finance minister of debt negotiations with on biodiversity and climate change negotiations environmental officials sat down on one table.

China's key roleThe eyes of the world are gathered in China: it has become a global leader in bilateral debt's largest creditor nation, at the same timeGreater effortsDeliver on the promises of climate change and natural conservation.Bilateral debt in developing countries, further highlights China's status as an international creditor nation.According to the green area along the center had issued a green initiativeresearch, 52 "area" in the selected countries, China is the biggest bilateral creditor, its total size than all other bilateral creditor's debt.In 2019, the most indebted of ten "area" of the country's total loans reached 64.2 billion dollars, this is equivalent to China only 0.2% of the domestic credit market size.

Debt - outstanding - chart
Between 2014 and 2019, 52 "area" of the selected country's official external debt (by creditors).Source: IIGF green center "area", based on the data, the world bank's international debt.

In November 2020, China's accession to "the group of 20 (G20)"Debt standstill agreement(DSSI), try to participate in the multilateral debt relief for the first time.DSSI at present, China has become the largest contributor.

"As a responsible creditor, [China] can best where there is demand, constructively in debt restructuring.This will lead to better results;Otherwise, wait until it is too late, would be tantamount to draw water, "Dr Volz told the bulletin of the carbon.

Dr Wang ke li said natural transformation can participate in debt to show China's determination to protect natural, bring the reputation of the "easy" return to China."无论这些债务对小型经济体来说是多么的庞大,对中国等大债权国而言,就显得微乎其微了,因而也更容易应对”,他补充道。

Veryls warned, however, if the discussions over the debt exchange only one-sided focus on China, may be missing key: "when we consider public and private areas and multilateral Banks all credit to developing countries, China is not the biggest creditor nation."She added:

"China to take unilateral action to solve all the problem, not reality, nor China holds proportion in the global credit.What we need is a collective action."

However, she still expect China to play a "leading role", "positive competition".

"If the G20 other creditors can also get involved in that order, follow China behind, showing its international leadership, that will be the best situation for", said Dr Ray in the global development research center.

Simmons, b. et al. (2021), China can help solve the debt and environmental crisesbiwei6868, Science,

Make, m. et al. (2021) : Debt - for - nature swaps: A triple - win solution for Debt sustainability and biodiversity finance in the Belt and Road Initiative (BRI)?, Green BRI Center, International Institute of Green Finance (IIGF), Beijing.

Volz, U., et al. (2020). Debt relief for a green and inclusive recovery: a proposal, Heinrich - among - Stiftung, SOAS, University of London and Boston University.

Sharelines from this story
  • Reading: China can use the "debt conversion" help developing countries cope with climate change
  • "New champions" outbreak to countries in debt, called on China to use "debt exchange" to help developing countries to realize "green recovery" voice intensified.

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