Debt for Development Swaps: An Approach Framework

Policy Papers, August 5, 2024

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Debt for Development Swaps: An Approach Framework

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Bibliographic details

• Published: August 5, 2024
• Series: Policy Papers
• DOI: https://doi.org/10.5089/9798400284625.007

Summary

• Aim: Help stakeholders optimize decision-making on when, where, and how to use debt-for-development swaps (“debt swaps”), ensuring they bring the intended benefits to all parties involved.
• Proposes new approaches to structure these mechanisms to make them less transaction-heavy and more sustainable while maintaining accountability for fulfilling policy and spending commitments.
• Definition: Debt swaps are agreements between a government and one or more of its creditors to replace existing sovereign debt with one or more liabilities that include a spending commitment towards a specific development goal.
• Possible development goals cited: nature conservation, climate action, education, nutrition, support for refugees.
• Note: The spending commitment is often associated with the country's decision to pursue an important development policy.

Key features and findings

• Debt swaps replace existing sovereign debt with liabilities that embed a spending commitment toward a specified development objective.
• Intended benefits target all parties involved: creditors, debtor governments, and development outcomes.
• Structural objectives emphasized:
  • Reduce transaction intensity.
  • Increase sustainability of arrangements.
  • Maintain accountability for policy and spending commitments.

Subjects and keywords (as provided)

• Subject: Asset and liability management, Debt conversion, Debt management, Debt service, Debt sustainability, Expenditure, External debt
• Keywords: debt amortization profile, Debt conversion, Debt management, Debt service, Debt sustainability, debt sustainability prospect, expenditure commitment, expenditure efficiency perspective, expenditure program commitment, Global, spending commitment, transparency policy

Policy implications and approach recommendations

• Optimize decision-making on when, where, and how to use debt swaps to ensure intended benefits are realized.
• Structure mechanisms to be:
  • Less transaction-heavy.
  • More sustainable over time.
  • Accountable for fulfilling policy and spending commitments.
• Align spending commitments with countries’ decisions to pursue key development policies.

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