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.
[…] Barbados aims to be carbon neutral by 2030 and to diversify its energy mix and reduce reliance on the heavy fuels imported into the island for energy production. Small Island Developing States are particularly interested in ocean-based climate solutions since the ocean provides an almost untapped source of renewable energy that can be used with no harm to ocean ecosystems. Global OTEC’s modular approach to the technology is designed to integrate with island grids, offering a sustainable alternative to diesel generation and can provide energy redundancy to the grid after severe weather impacts from tropical storms. […]
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