Debt-for-Climate Swaps: The G77+China’s Chance to Make Them More Than a Sideshow

When leaders gather in Belém for COP30 this November, developing countries will arrive with an old idea dressed in urgent new clothes: debt-for-climate swaps. For the Group of 77 and China (G77+China), representing more than 130 nations, swaps are no longer boutique transactions — they are being pitched as a central tool to help countries break free from the vicious cycle of debt distress and climate vulnerability.

The logic is simple. More than half of low-income countries are already at high risk of debt distress, while climate shocks demand increasingly higher spending. For many, the choice is stark: service debt or fund survival. Swaps offer a narrow but real escape route — reducing debt service in exchange for guaranteed investments in adaptation, mitigation or biodiversity.

A Sharpened Agenda for COP30:

At COP30, the G77+China will demand three things.

First, recognition. A formal COP decision acknowledging swaps as part of the climate finance toolkit will elevate them from sideshows to legitimate instruments.

Second, standardisation. Past swaps have been one-off, bespoke deals: legally complex, costly and too small to move the needle. Developing countries want the UNFCCC and multilateral development banks (MDBs) to produce model contracts, streamlined legal templates and monitoring frameworks that cut costs and boost credibility.

Third, creditor participation. Private bondholders and non-Paris Club creditors — especially China — must be drawn in. MDB-backed guarantees and blended instruments can make swaps attractive, not just charitable.

The G77’s message is careful but clear: swaps are not a substitute for large-scale debt relief or the trillions in concessional finance still required. But they are a complementary instrument, one that can be deployed now to create fiscal space for climate action.

From Symbolism to Strategy:

This is not how developing countries always viewed swaps. In the 1980s and 1990s, debt-for-nature swaps were pioneered by Costa Rica, Bolivia and the Philippines — often brokered by NGOs with bilateral creditors. The amounts involved were modest, the symbolism outsized. By the 2000s, with the advent of the HIPC initiative and large-scale debt cancellations, swaps slipped off the agenda.

The narrative shifted in the wake of COVID-19 and successive climate shocks. As the debt-climate trap tightened, the G77+China began explicitly calling for swaps in ministerial declarations, emphasising standardisation and scale. What was once a quirky conservation tool is now positioned as part of the broader fight for climate finance.

Streamlining Efforts: What Developing Countries Must Do

If swaps are to matter, developing countries need to move from aspiration to execution. That means:

● Creating a G77 debt-swap working group to unify positions and draft a “model ask” for negotiators. Fragmented approaches will get drowned out in Belém.

● Demanding UNFCCC-endorsed templates to cut transaction costs and make deals replicable, not bespoke.

● Scaling up regional facilities, like Barbados’s Caribbean Debt-for-Climate Swap Facility, which pools demand and leverages MDB guarantees. Similar platforms in Africa or the Amazon basin could multiply impact.

● Engaging private creditors with exchange packages sweetened by MDB risk-sharing. Bondholders control too much of the debt stock to be ignored.

● Embedding transparency and safeguards to defuse sovereignty concerns. Fiscal savings must be credibly channelled into climate priorities with community oversight.

Without these steps, swaps will remain boutique deals — politically attractive but financially marginal.

Lessons from Recent Swaps:

Recent examples show both potential and limits.

● Belize (2021): A $550 million swap, backed by The Nature Conservancy, cut debt service and funded marine conservation. Innovative, but heavily reliant on philanthropic intermediaries.

● Ecuador (2023): The world’s largest swap — $1.6 billion — generated $450 million for Galápagos conservation. Significant, but small against Ecuador’s $64 billion debt stock.

● Barbados (2022–): The Bridgetown Initiative reframed swaps as part of systemic reform, proposing a regional facility with MDB backing. It is arguably the most scalable model to date.

These deals prove swaps can work — but also show their narrow scale. Without standardisation, guarantees and pooled platforms, they will remain too small to be transformative.

The Way Forward at Belém:

Debt-for-climate swaps will not solve the climate finance crisis. Their fiscal impact will remain modest compared to the $2.4 trillion developing countries need annually for adaptation and mitigation.

But swaps can deliver triple wins: breathing room for debtor countries, tangible climate investments and reputational gains for creditors. They are one of the few tools that can be deployed quickly — if the political will exists.

The G77+China’s challenge at COP30 is to make swaps more than symbolic gestures. That means walking into Belém with a unified demand: recognition, standardisation and risk-sharing to bring in all creditors. If they succeed, swaps could finally evolve from ad hoc experiments into a credible piece of the climate finance architecture.

Fail, and they risk remaining what they have long been: clever but marginal side deals, remembered more for their symbolism than their substance.