LONDON – The Bahamas is to join a growing trend where countries promise better protection of precious ecosystems in return for having their debts reduced.
Bahamas economy minister Michael Halkitis told Reuters that a so-called “debt-for-nature” swap would launch in the next two to four months and focus on improving the country’s network of marine parks and protected areas.
The country’s prime minister had signalled a deal was on the cards earlier this year – nearby Barbados, Belize and Ecuador have all completed debt-for-nature swaps in recent years – but Halkitis’ comments are the first firm outline of the Bahamas’ plan.
The swap will involve less than $500 million of debt. The country has $2.9 billion of international bonds outstanding in total, meaning it could still involve well over 10% of it.
“We already have a lot of marine protected areas. So the focus (of the debt swap) is not so much on additional areas, but on improving the management of some of the areas that we have,” he said during an interview in London. “Around the fall, you’ll hear some more about it”.
The Bahamas has a strong incentive. It established the world’s first protected land and sea park, Exuma Cays, in 1958 which spans more than 100,000 acres of ocean and is home to the Western Hemisphere’s second largest coral barrier reef.
While market sensitivity meant Halkitis was not able to provide a more precise timing of the swap, his guidance suggests somewhere between late August and Oct. 21, when both the Commonwealth heads of government meeting in Samoa and the United Nations’ Biodiversity COP in Colombia begin, looks most likely.
The swap would be made possible by an Inter-American Development Bank credit guarantee to cut the debt, Halkitis said.
The first debt-for-nature swap was struck in 1987 and more than 100 deals have since followed, although using them to reduce international bond market debt has only taken off in recent years.
At their simplest, they see part of a country’s debt bought up by a bank or specialist investor and replaced, usually helped by a multilateral development bank credit guarantee, with a new lower-cost “nature” bond.
Some of the savings they generate then fund conservation or projects, such as water sanitation, deemed environmentally beneficial.
A separate source involved in the Bahamas plan told Reuters that non-profit The Nature Conservancy (TNC) – which has played a role in other debt swaps – was undertaking design work for the deal.
The Bahamas’ debt-to-GDP ratio rose to 75%, from just over 50%, after the COVID-19 pandemic slammed its vital tourism industry. It now spends around 18% of its revenues just paying the interest on its borrowings, credit rating S&P Global estimates.
(Reporting by Marc Jones; Editing by Alex Richardson)
