The Vice President, Prof. Yemi Osinbajo has revealed that Nigeria would benefit from a vast debt reduction amounting to billions of dollars if the nation’s idea for the Debt For Climate (DFC) swap deal is agreed upon.
Debt For Climate swap deal is a type of debt swap where bilateral or multilateral debt is forgiven by creditors in exchange for a commitment by the debtor to use the outstanding debt service payments for national climate action programs.
Osinbajo has been in the United States meeting with officials and gave a speech at the Centre for Global Development (CGD) to secure support for Debt For Climate swap agreements.
According to Prof. Osinbajo, “the proposed Debt-for-Climate swaps would be a very useful intervention and helpful as it will reduce debt burdens while advancing the Climate Change objectives of the international community.”
He further described the idea as a Climate Change related financing instrument worthy of global consideration as it is a win-win deal.
The vice president also pressed on the idea of opening up the Carbon Market in Africa so that the Climate Change actions of African countries can be effectively verified by the international community through the assessments of the appropriate verification channels.
In addition, he said, “we are hoping to get support and international buy-ins for these ideas, specifically the DFC and the participation of African countries in the international carbon market.”
He restated that the DFC will help solve several debt burden challenges in Nigeria and other countries.
Osinbajo in his CGD speech explained that “Debt for climate swap deal is a swap deal where bilateral or multilateral debt is dissolved by creditors in exchange for a commitment by the debtor to use the outstanding debt service payments for national climate action programs.
“Typically, the creditor country or institution agrees to forgive part of a debt, if the debtor country would pay the avoided debt service payment in a local currency into an escrow or any other transparent fund and the funds must then be used for agreed climate projects in the debtor country.”
The deal was described as creative in Washington D.C by senior American government officials and has already been receiving positive feedback even as Osinbajo explained the potential for significant debt cancellation for African countries.
Numerous countries in Africa are now contemplating debt-for-climate swaps as an innovative outcome to manage increasing public debts, climate change challenges, and COVID-19 recovery.
The earnings from the discount or foregone debt would then be used in an agreed manner to fund projects and tackle climate change.