The Pacific Small Island Developing States (PSIDS) are among the most vulnerable countries in the world to the effects of climate change and related disasters, but they can afford the least to invest in climate action. In addition to the adverse fiscal impacts of the COVID-19 pandemic, these countries have a high degree of economic vulnerability due to their small size and dependence on a few key export industries such as tourism or fisheries. As such, debt sustainability analyses conducted by the IMF and the World Bank regularly assess most PSIDS to be at high risk of debt distress. This report discusses the potential of debt for climate swaps to leverage additional finance for climate actions in the PSIDS while also reducing their debt burdens. The report examines the concept of debt for climate swaps, outlines the potential of debt for climate swaps in the PSIDS, and provides recommendations for the scheme design based on best practices.
Macroeconomic Policy and Financing for Development Division +66 2 288-1234 [email protected]