Debt for climate swaps: supporting a sustainable recovery

The COVID-19 pandemic has worsened the debt vulnerabilities of many low- and medium-income sovereigns. Debt levels were already high for many even prior to COVID outbreak, but are now exacerbated because government revenues have declined as a result of limited economic activity – while the timing and the quantum of debt servicing payments remain the same. The IMF estimates that the ratio of public debt service costs to government tax revenue will exceed 20% in a majority of low-income and emerging countries in 2021. As a greater proportion of these governments (now reduced) revenues are now dedicated to servicing debt, spending towards reviving growth or achieving climate goals will likely take a backseat.