|
Facilitating Policy Dialogue on Opportunities and Risks of Debt-for-Environment Swaps
The overall objective of this project is to demonstrate the feasibility of debt-for-environment swaps in the poorest EECCA countries by building their capacity to effectively develop, negotiate and ultimately implement and manage such swaps. While these swaps provide a number of opportunities to increase the level of resources available for environmental expenditures, they are not without risks either. Their risks and opportunities need to be carefully analysed before a country launches such a scheme.
As experience shows, arranging debt-for-environment swaps is not an easy task. It requires concerted efforts of the whole government and very thorough preparations, including robust pre-feasibility studies, strong fiscal capacity, commitment to transparency and international credibility of the domestic spending and expenditure programme that is attractive to the whole government. With caution and determination, debt for environment swap is a realistic option for some countries and can play a significant role in mainstreaming the environment in government policies and in domestic environmental financing.
Most EECCA countries began the transition period with little or no external or domestic debt, as soon after 1991, Russia, as agreed with the creditors, offered the other EECCA to take over 100% of all official foreign liabilities and assets of the former Soviet Union. Since then, EECCA have rapidly accumulated external debt and some are now facing an increasingly difficult debt burden, relative to their ability to generate primary external and budget surpluses. Seven of them are now eligible for debt relief as part of the debt initiative on debt relief for the poorest countries of the former Soviet Union (the so-called CIS-7 Initiative): Armenia, Azerbaijan, Georgia, the Kyrgyz Republic, Moldova, Tajikistan, and Uzbekistan. Linking debt for environment swap with regional initiatives, such as the CIS-7 initiative, and involving Russia in mutual offsets could increase the significance and likelihood of positive outcomes.
Debt-for-nature/environment swap initiatives should always be carefully considered, as if managed in an inappropriate way, this can affect the country’s credit rating and increase costs of sovereign borrowing. Hence, such a swap could be particularly considered, if there is already an ongoing, wider debt-restructuring negotiated with the creditor countries belonging to the Paris Club. Debt-for-nature/environment swap initiatives should not be announced by environmental authorities without prior consensus with the Ministry of Finance and the Cabinet. Ministries of Environment could, however, stand prepared with a convincing structure and expenditure program once the opportunity arises.
So far, only Georgia and the Kyrgyz Republic have used the opportunity to include a swap clause in the framework debt restructuring agreement with the Paris Club creditors. Both countries have set up inter-ministerial working groups under the auspices of the Presidents, consisting of Ministry of Environment, Ministry of Economy, Ministry of Finance, and Ministry of Foreign Affairs. Both Georgia and the Kyrgyz Republic have requested the EAP Task Force co-operation on analysing options for the transaction structure, institutional set-up, expenditure programme and negotiations strategy.
In this context, Environment Ministers at the Fifth “Environment for Europe” Ministerial Conference in Kiev, Ukraine (May 2003), welcomed the recent initiative of Georgia to develop a debt-for-environment swap and encouraged other poor, indebted countries of the region to consider working with their creditors to develop similar schemes.
To respond to these developments, the new 2004-2007 EAP Task Force Work Programme on Environmental Finance implemented three major activities, two country-specific projects and a summary report. The two country-related projects are: Institutional Support to Georgian Debt-for-Environment Swap, and Pre-Feasibility Analysis and Institutional Support for Debt-for-Environment Swap in the Kyrgyz Republic. A report summarising the experience with designing, negotiating and implementing DFES in CEE and EECCA countries has been also prepared (see the report attached under Files to download below).
For more information on debt-for-environment swaps, please contact Nelly PETKOVA at nelly.petkova@oecd.org.
Files to download:
|
