The government of Barbados has completed its first debt-for-climate swap aimed at enhancing water resource management.
Barbados bought back $293 million of its own debt, refinancing it with the backing of the Inter-American Development Bank (IDB) and the European Investment Bank (EIB) to generate $125 million in savings. These funds will be used to fund the development of the island’s South Coast sewage treatment plant, transforming it into a modern water reclamation facility. Associated facilities will produce water of suitable quality for agricultural irrigation and groundwater recharge, resolving threats to the country’s water supplies.
The debt-for-climate conversion, structured as a Sovereign Sustainability-Linked Loan (SSLL), is the first one tied to a sovereign water security project. Sustainability performance targets related to the volume of water produced by the South Coast Water Reclamation Facility must be met to avoid a financial penalty, which would be paid into a specialized trust for environmental investments.
Debt-for-nature swaps are emerging as a solution to burdensome sovereign debt and growing climate risks, especially among islands, which are especially vulnerable to climate change. The World Economic Forum estimates that debt-for-nature swaps could free up $100 billion globally to restore ecosystems and help countries adapt to climate change.
