Sri Lanka exploring debt relief through nature conservation

SRI Lanka is in talks with the United Nations Development Programme and other agencies for a debt-for-nature swap programme, as the South Asian island faces its worst economic crisis in decades.

The country is in the preliminary stages of structuring a deal, Anil Jasinghe, secretary to the Ministry of Environment, said by phone on Friday (Nov 18). The plan involves restoring a degraded ecosystem in exchange for cancelling debt, he said.

The nation’s creditors must be consulted once a value for earmarked systems are decided, Jasinghe said, adding that US$1 billion is a figure that’s being considered, although it’s too early to confirm.

A dearth of foreign currency in Sri Lanka drove up inflation at the fastest rate in Asia earlier this year, leading the country to default on its debt and run out of essentials, including food and medicine. While re-purposed funds from multilateral lenders and assistance from other nations have provided temporary relief, Sri Lanka is still struggling to pay for imports like fuel.

The issue of high indebtedness among developing countries has been a hot-button issue at COP27 climate talks happening in Sharm El-Sheikh, Egypt. The solutions offered include debt payment suspension after an extreme weather event, debt swaps for nature protection, and concessionary funding for the energy transition. As the talks draw to a close, the European Union has offered a climate-finance deal that would include a “mosaic” of funding options, including debt relief.

Sri Lankan President Ranil Wickremesinghe is trying to meet conditions for securing a US$2.9 billion International Monetary Fund programme, which would also help Colombo secure other lines of credit for Sri Lanka. Local authorities are currently negotiating with the nation’s major creditors to complete restructuring talks that would help clinch the IMF bailout.

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The island’s government has had talks with a UK state agency on conducting a natural capital assessment on marine environment, Jasinghe said. BLOOMBERG