Pakistan Nears Debt-for-Nature Swap Agreement With Creditors

Pakistan is closing in on a deal with bilateral creditors that would tie debt relief to the achievement of biodiversity goals, government officials said.

The South Asian nation is working with lender countries on a debt-for-nature swap program, which would see debt relief in return for binding commitments to achieve conservation targets. An official letter of intent could be announced as soon as World Environment Day on June 5, which Pakistan is hosting this year.

“Four to five creditors will commit to an intent to engage for a debt-for-nature swap,” Malik Amin Aslam, climate change adviser to Prime Minister Imran Khan, said in an interview.

The country is working with the U.K., Germany, Italy and Canada, though that’s yet to be finalized, according to Noor Ahmed, secretary at the government’s economic affairs division. Apart from Germany, those aren’t among Pakistan’s largest outstanding bilateral creditors, with that list topped by China, Japan and the United Arab Emirates, according to an International Monetary Fund report released last month.

Debt swaps have been around for decades, with the United Nations putting the value of debt-for-climate and nature agreements at over $2.6 billion from 1985 to 2015 -- though most of that was during the 1990s. There’s been a push to repopularize the structure as part of a broader campaign to realign finance with the protection of the natural world at the same time as reducing nations’ debt strain after the coronavirus pandemic.

Earlier this year, Pakistan said it was developing a so-called nature-performance bond, a new instrument that would tie the cost of repayments to quantified biodiversity targets. That’s part of a plethora of recently-created debt types aimed at tapping surging investor interest in environmental, social and governance assets.

The concept of nature or conservation bonds was given a push this year by a U.K. government review led by Partha Dasgupta that called for an urgent overhaul of economic metrics so that they take account of the price of damaging natural ecosystems.

Pakistan has a fragile economy that goes through regular boom and bust cycles. It received debt relief during the pandemic, and restored a $6 billion bailout program that it secured from the IMF in 2019 to avoid bankruptcy.

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