A Roadmap for Implementing Innovative Finance
BACKGROUND
The current environment provides a unique opportunity for SIDS facing climate
related vulnerabilities but with little fiscal capacity amid heavy debt burdens to
explore options to address these issues in a systematic manner
§ Global momentum has been building among stakeholders to incorporate climate
resilience and environmental sustainability alongside financial sustainability in
sovereign finance
• UN Climate Change Conferences of the Parties (COP) established in 1992
• A surge in the issuance of green and blue securities as well as the development of
innovative financial tools to further foment development, climate resilience and
conservation initiatives
§ However, there’s been limited progress in supporting concrete policy actions for
SIDs with significant vulnerabilities to climate-related shocks, to source affordable
financing to combat climate issues, particularly where debt sustainability also
needs to be addressed
§ These gaps could be exploited to test appetite among creditors and other
stakeholders to consider innovative options to address climate-related challenges
within the context of sovereign debt sustainability

ANTIGUA AND BARBUDA’S STRATEGIC APPROACH
The GoAB is capitalising on global trends to leverage concrete policy actions and
established domestic frameworks to mobilise resources to create fiscal space to
facilitate climate mitigation action
• The strategic approach is linked to well formulated fiscal and debt plans (MTFS and
MTDS)
• Several action plans are being pursued to create fiscal space to address both
financial and climate vulnerabilities
• One of these options relates to engaging with creditors and and other key
stakeholders to fund much needed spending on projects to mitigate growing
climate risks, while normalising debt arrears and fostering debt sustainability
§ This session focuses on debt for climate swaps that target environmental
consideration with concrete projects that quantify mitigation action
§ This involves coordination of a multiplicity of stakeholders that is supported by an
accommodative national institutional framework and a robust communications
strategy

POLICY APPROACH
The capacity to attract climate financing requires an important set of
institutional arrangements.
§ Debt conversion programmes that incorporate climate considerations
requires the coordination of a multiplicity of stakeholders that is supported by
an accommodative national institutional framework.
§ Antigua and Barbuda has worked with national and regional institutional
arrangements to advance debt-for-climate swaps.

NATIONAL INSTITUTIONAL FRAMEWORK
The Environmental Protection and Management Act (2019)
§ Antigua and Barbuda’s national institutional framework is built on legislation
that supports climate finance mobilization.
§ Chart of Accounts for the Annual Budget was amended in 2019 to allow for
tracking climate finance. The Medium-Term Development Strategy, the Blue
Charter, the Nationally Determined Contributions and the National
Adaptation Plan outline the plans and programs.

ENVIRONMENTAL PROTECTION & MANAGEMENT ACT (2019)
PART IV ENVIRONMENTAL POLICIES AND PLANS
§ Empowers the Department of the Environment to act in collaboration with
the appropriate authorities, Ministries and statutory bodies, to undertake the
preparation of a National Environmental Policy Framework in accordance
with the objects of the Act.
§ The Act also supports the identification of specific legal, financial and
institutional aspects that need to be addressed to give effect to the policy.
§ Several Government stakeholders collaborate for implementation of climate
related policies – These include Ministry of Works, Ministry of Environment,
Ministry of Finance, National Office of Disaster Services and the Ministry of
Agriculture.


§ The Act also establishes the Sustainable Island Resources Framework Fund
(SIRFF) under section 92.
§ The schedule to the Act outlines the functions of the board and operational
guidelines for the Fund.
§ The Fund is also established as a special fund under Finance Administration
Act with its own set of regulations.
§ Further institutional modifications will still be required to make the fund fit for
purpose on concluding the debt-for-climate swaps

NATIONALLY DETERMINED CONTRIBUTIONS (NDCs)
Antigua and Barbuda’s updated NDCs are aligned for debt-to-climate
swaps and confirms Antigua and Barbuda’s strategy for:
§ Increasing the fiscal space necessary to fund climate adaptation and
mitigation activities because of reduced debt service requirements; and
§ Directly contributing to financial capacity of the SIRF Fund, which was
identified in the first NDC as a central financial institution for meeting
conditional commitments.

PROJECT DEVELOPMENT
The country has developed a comprehensive package of projects,
programmes and climate actions and determined the financing needs and
sustainable development co-benefits.
§ This is highlighted in its NDC Implementation Plan and its GCF Country
Programme and will be further elaborated in the National Adaptation Plan.
§ Project pipeline development is important for attracting financing and for
ensuring that there are budgetary allocations for co-financing.

CARIBBEAN RESILIENCE FUND
The Caribbean Resilience Fund is a special purpose financing vehicle
intended to leverage long-term low-cost development financing for the
Caribbean while at the same time ensuring the availability of resources for
investment in adaptation and mitigation initiatives in the development of
green industries.
By providing financing for strategic interventions across the Caribbean, it is
expected to counter regional challenges including:
§ Environmental vulnerability;
§ Relatively low economic growth;
§ SDG gaps;
§ High debt; and
§ Limited access to financing.
It is an opportunity to promote much needed resilience building and
structural transformation for Caribbean economies.

IMPLEMENTATION CONSIDERATIONS
Debt swaps are undertaken on a voluntary basis. A creditor is not under obligation to consider
a debt swap with a debtor country; there must be strong financial, political, and/or social
reasons for engaging with a debtor country in a debt swap
• Fiscal and debt constraints, in the face of tangible existing vulnerabilities, are among the
principal determinates for creditors to consider entering a debt swap with a debtor country
• Convincing a creditor of the mutual benefits is the main challenge for any debtor. A creditor’s
decision to forgo a future claim on a debtor in exchange for providing financial assistance in
addressing tangible vulnerabilities must be anchored on real commitments
• Debtor country must provide sufficient comfort that all financial, political, and social
commitments will be met in a transparent and accountable manner through robust legal,
institutional, and political guarantees to demonstrate that the appropriate fiscal resources will
channeled for agreed upon purposes
• Not all creditors have the political or financial ability to undertake debt swaps

There are seven steps to successfully implement a debt swap:
1. Analysis of the public sector’s debt portfolio to identify eligible claims and potential quantum
of debt eligible for a debt swap. Target liabilities with least favourable terms (higher interest
rates, shortest maturities, and embedded risks)
2. Identification of willing creditors for executing a debt swap
3. Definition of goals and commitments as well as the benefits of the debt swap. Critical to
identify and selecting appropriate implementation agents
4. Definition of Potential Climate Mitigation and Adaptation Projects


5. Formulation of a communication and engagement strategy: building consensus and garnering
support from stakeholders (donors, multilaterals, NGOs and other influential parties) is key
6. Establishment of compliance and legal frameworks to support monitoring, accounting, and
reporting requirements established by the creditor
7. Closing the transaction, which involves negotiating the modalities of the debt swap operation
with the willing creditor

DEBT SWAPS IN THE CONTEXT OF SUSTAINABILITY
Debt Swaps have been usually linked to debt sustainability issues
§ Debt swaps are tripartite agreements among a debtor, a creditor, and an
implementation agent (NGO), whereby a liability (usually in foreign currency) is
cancelled in part /full in exchange for a debtor’s commitment to re-channel
domestic resources (local currency) for an agreed upon purpose
§ Executed between sovereign debtors experiencing financial difficulties (decreased
fiscal capacity and/or debt sustainability) and bilateral creditors looking to support
specific projects of a social nature that otherwise could not be financed
§ The formal institutionalisation of debt swaps are traced to the Paris Club as part of
debt relief operations in support of reforms under IMF programmes
§ Possibility of voluntary debt swaps included in the agreed multilateral minute
signed between Paris Club and a debtor country after a debt relief had been
negotiated
Debt swaps have been considered a reward in the form of additional support for the
implementation of agreed upon projects with a social component, for debtor
countries compliant with commitments under an IMF programme and the Paris Club
agreed minute
§ The popularity and applications of debt swaps have expanded by different
stakeholders looking to lock-in additional rewards (financial and/or political), with a
social benefit component the underlying driver for their completion
§ Despite potential benefits, debt swaps are complex and protracted to negotiate
which has discouraged debt countries to consider them seriously
§ Not all creditors are prepared to consider debt swaps
§ Debt swaps involve debt cancellation which impact bottom lines and capital
ratios
§ Multilateral creditors do not have mandates for debt swaps / impact their
capital base
§ Bilateral creditors need political approval (time consuming)
§ Commercial creditors have usually been reluctant to consider debt swaps that
do not enhance their bottom line

SOME CONCLUSIONS
Debt Swaps alone will not have material impact long-term debt sustainability
• In the case of Antigua and Barbuda, the debt swaps are not being pursued solely to address
debt sustainability
• They are viewed in the context of scaling up fiscal space to address financial and climate
vulnerabilities
• Within in the context of debt sustainability, they may help facilitate efforts to normalise arrears
and debt relations with bilateral creditors and lay a platform for future engagement with new
resources
• Formulating and implementing a debt-for-climate adaptation swap strategy to mobilize funding
for environmental vulnerabilities, while tackling an unsustainable public sector debt burden,
will be an ambitious and complex undertaking
• The magnitude and scope of the environmental challenges and climate risks that the GoAB
needs to address implies that a debt-for-climate adaptation swap strategy alone cannot provide
sufficient financial resources to fully undertake a set of mitigation projects. A variety of
additional strategies and financing alternatives to pool resources to mitigate the diverse set of
environmental challenges and financial vulnerabilities is necessary
• Building consensus among all stakeholders is fundamental
• Regional and global cooperation is necessary to effectively address climate change
• Capacity building is needed and it is critical to create joint and regional robust implementation options