Published on 10 December 2024 in Client Alerts

Volterra Fietta’s client, Barbados, completes the first ever debt swap for climate resilience

Barbados completed the first ever debt swap for climate resilience.  The transaction generates USD 125 million for Barbados in fiscal savings, which it will use “to enhance water resource management and increase water and food security”.

Barbados is a small island developing State, which is facing the destructive effects of climate change.  The climate crisis risks making States like Barbados “uninvestable” and “uninsurable”, as Barbados explained in climate change proceedings before the Inter-American Court of Human Rights and the International Court of Justice (in which Volterra Fietta is its counsel).  Barbados has been at the forefront of proposing solutions through, among other things, its Bridgetown Initiative 3.0 and Presidency of the Climate Vulnerable Forum / V20, a partnership of States highly vulnerable to climate warming.  For example, Barbados and the V20 States have called for debt-for-climate swaps for “interested middle-and-low-income vulnerable economies where new climate ambition and investments are restricted because of limited fiscal space”.

Debt swaps are transactions in which a borrowing State’s existing and expensive debt is swapped for debt at a discount in exchange for the borrowing State agreeing to take on specific actions.  There have been over 140 “debt for nature” swaps concluded, in which States agree to use funds for conservation purposes (e.g., with Ecuador and The Bahamas).

Barbados’s transaction is the first to use the debt swaps for climate resilience.  Under this transaction, Barbados refinanced its existing debt with guarantees from the Inter-American Development Bank and the European Investment Bank, as well as a grant from the Green Climate Fund.  Prime Minister of Barbados, Hon. Mia Mottley SC, MP, stated that this transaction delivers “rapid adaptation benefits for Barbados” allowing Barbados to build “a state-of-the-art facility to boost water management, food security, and resilience”.  Reuters reported that “[o]ther countries have already expressed an interest in following Barbados to market”.       

For further information, please contact info@volterrafietta.com.