Spain has joined forces with the World Bank to assist poorer nations in unlocking funds for development and environmental conservation through debt “swaps,” according to a statement from the Ministry of Economy on Tuesday.
As wealthier countries reduce their official development aid and many nations face mounting debt challenges, governments are exploring innovative solutions to finance initiatives such as coral reef protection and education.
The Spanish government announced that the Global Hub for Debt Swaps for Development, unveiled at the UN's Finance for Development summit in Seville, will offer technical and financial support to countries pursuing debt swaps aimed at improving food security and adapting to climate change, Reuters reports.
In recent years, countries such as Barbados, Belize, Ecuador, and Ivory Coast have utilised debt swaps, replacing costlier loans or bonds with more affordable refinancing arrangements.
In recent years, approximately $6 billion in debt-for-nature swaps, agreements that lower a country's debt in return for commitments to environmental conservation, have been carried out.
Development banks often play a key role in these deals by offering guarantees or risk insurance, which helps reduce the cost of the restructured debt and creates financial savings.
However, critics argue that these transactions can be overly complex and time-consuming, limiting their broader use despite being viewed by supporters as an essential tool for easing debt pressures and advancing development goals.
“We have heard loud and clear the message from many countries: we need practical tools that make debt swaps simpler, faster and more accessible,” according to Spain's minister of Economy, Trade, and Business, Carlos Cuerpo.
Spain will provide €3 million to help fund the Global Hub, while World Bank President Ajay Banga announced the establishment of a multi-partner trust fund to support technical assistance efforts.
This initiative comes at a pivotal time for the debt swap market, as uncertainty grows over the future of key US support for climate and nature-focused deals, support that could diminish significantly under President Donald Trump.
Despite the uncertainties, interest in broader development-focused debt swaps remains high, Inter-American Development Bank (IDB) President Ilan Goldfajn stated at a press conference in Seville on Tuesday.
The IDB has supported five of the last nine significant debt-for-nature swaps, often working in partnership with the United States' International Development Finance Corporation (DFC).
“We are getting demand for debt for education, debt for health. Those are things that have been under construction. Let's see how they evolve,” Goldfajn said.
To encourage broader use of debt swaps, a coalition of conservation organisations, investors, development bankers, and legal experts have released a best-practice guide to help streamline and standardise these transactions.