(NewsRadio); Sri Lanka is reportedly in talks with the United Nations Development Program and other agencies for a debt-for-nature swap program, as the country is dealing with its worst economic crisis in decades.
According to Bloomberg and Reuters, Sri Lanka is in talks for a “debt-for-nature” swap deal of up to USD 1 billion in climate-focused finance, a kind of accord discussed at the United Nations COP27 summit in Egypt.
Sri Lanka is among several other countries including Ecuador exploring the possibility of agreeing on debt-for-nature swap deals to ease the debt issues.
The bilateral agreement involves purchasing foreign debt, converting them into local currency and using the proceeds to fund conservation activities.
The key to the transaction lies in the willingness of commercial banks or governments to sell debt at less than the full value of the original loan.
Meanwhile, Secretary to the Ministry of Environment Anil Jasinghe speaking to Reuters has said Sri Lanka is in the preliminary stages of striking a deal.
Anil Jasinghe has said the plan involves restoring a degraded eco-system in exchange for canceling debt.
He noted Sri Lanka’s creditors must be consulted once a value for earmarked systems are decided, adding that $1 billion is a figure that’s being considered, although it’s too early to confirm.
The issue of high indebtedness among developing countries has been a hot-button issue at COP27 climate talks happening in Sharm El-Sheikh, Egypt.
The solutions offered include debt payment suspension after an extreme weather event, debt swaps for nature protection, and concessionary funding for the energy transition.
As the talks draw to a close, the European Union has offered a climate-finance deal that would include a “mosaic” of funding options, including debt relief.
Meanwhile, President Ranil Wickremesinghe is also working to meet conditions for securing a USD 2.9 billion International Monetary Fund program, which would also help the government secure other lines of credit for Sri Lanka.
Local officials are currently negotiating with Sri Lanka’s major creditors to complete restructuring talks that would help clinch the IMF bailout.
– With inputs from Bloomberg and Reuters