Barbados ‘debt-for-climate’ swap backed by $300 million EIB, IADB guarantee – statement

By Rachel Savage

(Reuters) -The European Investment Bank (EIB) and Inter-American Development Bank (IDB) are providing a $300 million guarantee for Barbados to execute a “debt-for-climate” swap to upgrade water infrastructure, the European Commission said on Friday.

The deal will enable the Caribbean island nation to issue the equivalent of $295 million of sustainability-linked debt, with the EIB and IDB each providing $150 million guarantees, the Commission said in a statement.

“This innovative financing structure, a world’s first for resilient infrastructure, can provide a new avenue to allow climate-vulnerable states to accelerate critical investment in adaptation in a manner that does not jeopardise public debt dynamics,” Barbados Prime Minister Mia Mottley said in the statement.

It was not immediately clear which debt Barbados will swap in the latest deal. Savings will go towards sewage treatment plant upgrades that the EC said would increase water supplies and mitigate the impact of climate change.

“Debt-for-nature” and “debt-for-climate” swaps are intended to generate savings via cheaper debt for specific conservation or climate-related purposes. They have grown in popularity recently, with Ecuador’s record $1.6 billion swap in May sparking more interest in such arrangements.

In September 2022, Barbados carried out a “debt-for-nature” swap, with a swap of $150 million of international bonds generating $50 million for marine conservation, on an island where pristine waters and beaches are vital for the tourism sector.

Reuters first reported the latest swap was being planned in October, when finance minister Ryan Straughn said it was likely to be early next year.

The EIB guarantee is part of the European Union’s Global Gateway project, a bid to woo Global South countries that have long looked to China’s Belt & Road Initiative to fund their infrastructure needs.

“The EU is fully committed to supporting climate-resilient infrastructure projects in our partner countries,” Jutta Urpilainen, the EU’s Commissioner for International Partnerships, said in the statement.

(Reporting by Rachel Savage and Marc Jones, Editing by Libby George and Hugh Lawson)