Consider the following statements regarding Debt-For-Development Swaps:

1. Debt-For-Development Swaps are agreements where a government restructures its sovereign debt by committing to invest in specific development goals such as climate action, education, or conservation.

2. The world’s first and largest debt swap to conserve oceans was signed by Ecuador in 2023.

Which of the statements given above is/are correct?

The correct answer is option 3.

Key Points

• Debt-For-Development Swaps involve an agreement between a government and creditors where sovereign debt is replaced with a liability that includes a spending commitment toward development goals like climate action, nature conservation, and education. Hence, Statement 1 is correct.
• In May 2023, Ecuador signed the world’s first and largest debt-for-ocean conservation swap, exchanging $1.6 billion in bonds for a new $656 million loan, primarily to protect the Galápagos Islands. Hence, Statement 2 is correct.

Additional Information

• Other Debt Swaps:
  • Gabon announced a $500 million debt-for-nature swap in August 2023 to finance marine conservation.
• IMF's Role: The IMF framework assesses factors like financial viability, debt sustainability, and net economic benefits in Debt-For-Development Swaps.
• Benefits of Debt Swaps: These swaps help developing nations reduce debt while investing in social and environmental initiatives, promoting sustainable economic growth