{
  "title": "Belize: Swapping Debt for Nature",
  "publication": "IMF News, May 4, 2022",
  "sourceUrl": "https://www.imf.org/en/news/articles/2022/05/03/cf-belize-swapping-debt-for-nature",
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  "summary": "A debt-for-nature swap has cut the Caribbean country’s stock of external debt and is creating cash to protect the longest coral reef in the Western Hemisphere. There is scope for similar swaps to fund conservation or climate work in other countries with expensive debt on their books.",
  "authors": [
    "Nicholas Owen May"
  ],
  "publishDate": "2022-05-04",
  "sections": [
    {
      "heading": "Overview",
      "content": "- A debt-for-nature swap signed on November 5 reduced Belize’s external debt and created cash to protect the country’s barrier reef, the longest in the Western Hemisphere (170 miles).\n- The swap cut the country’s stock of external debt by 10 percent of GDP and greatly improved prospects for marine protection."
    },
    {
      "heading": "Deal mechanics and financing",
      "content": "- TNC subsidiary lent funds to Belize to buy back a $553 million “superbond”—the government’s entire stock of external commercial debt, equivalent to 30 percent of GDP—at a discounted price of 55 cents per dollar.\n- The loan was financed by issuing $364 million in “blue bonds” in a sale arranged and underwritten by Credit Suisse.\n- The International Development Finance Corporation (DFC) provided insurance, enabling:\n  - a low interest rate,\n  - a 10-year grace period during which no principal is paid,\n  - a long maturity of 19 years.\n- Moody’s rated the blue bonds Aa2."
    },
    {
      "heading": "Conservation commitments and structure",
      "content": "- Belize agreed to spend about $4 million a year on marine conservation until 2041.\n- Marine-protection parks will be expanded from 15.9 percent of its oceans to 30 percent by 2026 (covering coral reefs, mangroves, and seagrasses).\n- An endowment fund of $23.5 million will finance conservation after 2040."
    },
    {
      "heading": "Investor participation and safeguards",
      "content": "- Private investors were initially cautious because the swap was complex and Belize had a history of defaults.\n- The DFC’s insurance was crucial: “If we didn’t have the insurance, no one was looking to lend to Belize.”\n- TNC’s three-decade history running conservation programs in Belize helped assure investors that promised marine protection would occur and reduced concerns about “bluewashing.”\n- Environmental, social, and governance (ESG) investor interest supported marketing of the blue bonds to a broader investor base, including risk-averse investors such as pension funds."
    },
    {
      "heading": "Implications and broader prospects",
      "content": "- Debt-for-nature swaps have existed since the late 1980s, but the Belize deal is notable because:\n  - the bond market provided the “grant” in the form of a discount price, and\n  - the deal involved private creditors and was financed by private investors.\n- The deal is of “tremendous benefit” for restoring debt sustainability, promoting sustainable development, and enhancing resilience to natural disasters and climate change.\n- There is scope for similar swaps in countries whose debt is trading at a discount or incurring high interest rates.\n- TNC is exploring similar arrangements in seven other countries.\n- Not all future swaps will have the same debt impact: Belize’s relatively large debt stock relative to GDP and especially deep discount made the impact significant; other countries may realize smaller debt-to-GDP effects but still obtain cash for conservation or climate projects and some savings.\n- Past precedent: TNC helped Seychelles restructure Paris Club debt and channel savings into ocean conservation in 2016."
    },
    {
      "heading": "Key statistics and dates",
      "content": "- Reef length: 170 miles\n- Debt reduction: 10 percent of GDP\n- Superbond size: $553 million (equivalent to 30 percent of GDP)\n- Discount price: 55 cents per dollar\n- Blue bonds issued: $364 million\n- Loan grace period: 10-year grace period during which no principal is paid\n- Loan maturity: 19 years\n- Annual conservation spending: about $4 million a year until 2041\n- Marine protection expansion: 15.9 percent to 30 percent by 2026\n- Endowment fund: $23.5 million\n- Credit rating of blue bonds: Aa2 (Moody’s)\n- TNC exploring swaps in: seven other countries\n- Belize swap signed: November 5\n- Article date: May 4, 2022\n\nSource: IMF News article \"Belize: Swapping Debt for Nature\" by Nicholas Owen (May 4, 2022).\n\n---\n\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- Chart of the Week\n- Finance and Development Magazine\n- PRESS CENTER\n- Finance & Development: Meeting the Future\n- Regional Economic Outlook for the Western Hemisphere\n- Belize and the IMF\n- March 2022 issue\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2022/05/03/cf-belize-swapping-debt-for-nature"
    }
  ],
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    "Authors: Nicholas Owen May",
    "Published: May 4, 2022",
    "A debt-for-nature swap signed on November 5 reduced Belize’s external debt and created cash to protect the country’s barrier reef, the longest in the Western Hemisphere (170 miles).",
    "The swap cut the country’s stock of external debt by 10 percent of GDP and greatly improved prospects for marine protection.",
    "TNC subsidiary lent funds to Belize to buy back a $553 million “superbond”—the government’s entire stock of external commercial debt, equivalent to 30 percent of GDP—at a discounted price of 55 cents per dollar.",
    "The loan was financed by issuing $364 million in “blue bonds” in a sale arranged and underwritten by Credit Suisse.",
    "The International Development Finance Corporation (DFC) provided insurance, enabling:",
    "Moody’s rated the blue bonds Aa2.",
    "Belize agreed to spend about $4 million a year on marine conservation until 2041.",
    "Marine-protection parks will be expanded from 15.9 percent of its oceans to 30 percent by 2026 (covering coral reefs, mangroves, and seagrasses).",
    "An endowment fund of $23.5 million will finance conservation after 2040.",
    "Private investors were initially cautious because the swap was complex and Belize had a history of defaults.",
    "The DFC’s insurance was crucial: “If we didn’t have the insurance, no one was looking to lend to Belize.”",
    "TNC’s three-decade history running conservation programs in Belize helped assure investors that promised marine protection would occur and reduced concerns about “bluewashing.”",
    "Environmental, social, and governance (ESG) investor interest supported marketing of the blue bonds to a broader investor base, including risk-averse investors such as pension funds.",
    "Debt-for-nature swaps have existed since the late 1980s, but the Belize deal is notable because:",
    "The deal is of “tremendous benefit” for restoring debt sustainability, promoting sustainable development, and enhancing resilience to natural disasters and climate change.",
    "There is scope for similar swaps in countries whose debt is trading at a discount or incurring high interest rates.",
    "TNC is exploring similar arrangements in seven other countries.",
    "Not all future swaps will have the same debt impact: Belize’s relatively large debt stock relative to GDP and especially deep discount made the impact significant; other countries may realize smaller debt-to-GDP effects but still obtain cash for conservation or climate projects and some savings.",
    "Past precedent: TNC helped Seychelles restructure Paris Club debt and channel savings into ocean conservation in 2016.",
    "Reef length: 170 miles",
    "Debt reduction: 10 percent of GDP",
    "Superbond size: $553 million (equivalent to 30 percent of GDP)",
    "Discount price: 55 cents per dollar",
    "Blue bonds issued: $364 million",
    "Loan grace period: 10-year grace period during which no principal is paid",
    "Loan maturity: 19 years",
    "Annual conservation spending: about $4 million a year until 2041",
    "Marine protection expansion: 15.9 percent to 30 percent by 2026",
    "Endowment fund: $23.5 million",
    "Credit rating of blue bonds: Aa2 (Moody’s)",
    "TNC exploring swaps in: seven other countries",
    "Belize swap signed: November 5",
    "Article date: May 4, 2022",
    "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)",
    "[Chart of the Week](https://www.imf.org/en/Blogs/chart-of-the-week)",
    "[Finance and Development Magazine](https://www.imf.org/en/publications/fandd)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[Finance & Development: Meeting the Future](https://www.imf.org/en/Publications/fandd/issues/2022/03/Country-cases-meeting-the-future-Belize-Colombia-Ghana)",
    "[Regional Economic Outlook for the Western Hemisphere](https://www.imf.org/en/Publications/REO/WH/Issues/2022/04/22/regional-economic-outlook-for-western-hemisphere-april-2022)",
    "[Belize and the IMF](https://www.imf.org/en/Countries/BLZ)",
    "[March 2022 issue](https://www.imf.org/en/Publications/fandd/issues/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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