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Sri Lanka May Be the Next Country to Introduce ‘Debt-For-Nature’ Swaps to Mitigate Economic Crisis

‘Debt-for-nature’ swaps are re-emerging as a solution to economic crises caused by the pandemic. Now, the United Nations has called on Sri Lanka to negotiate a “debt for nature” swap tied to environmental protection to ease the country’s economic meltdown.

‘Debt-for-nature’ swaps are re-emerging as a solution to economic crises caused by the pandemic. Now, the United Nations has called on Sri Lanka to negotiate “debt-for- nature” swaps tied to environmental protection to ease the country’s economic meltdown.

According to an article by Financial Times, the UN Development Program submitted the proposal, along with the suggestion of introducing a temporary basic income, in a document that has now been submitted to President Gotabaya Rajapaksa’s government and will be considered by the Cabinet, which was recently sworn in.

Earlier, the government, which has to pay about $8 billion in debt and interest this year, suspended bond payments and began negotiations for an IMF bailout package. The heavily indebted island nation had been unable to repay loans due to low foreign currency reserves, triggering an economic and political crisis with mass protests over food, fuel and medicine shortages.

UNDP argues that Sri Lanka, which has long-term debts of about $45 billion to creditors such as international bondholders and countries like India and China, needs immediate financial support. The UN body has therefore asked Sri Lanka to seek swaps and short-term financing from said countries to ease the economic pain ahead of IMF assistance.

Sri Lanka is in the midst of its worst economic crisis in decades – but the country’s situation is not unique. Concerns about a debt crisis in the Global South are steadily growing. DRGR, therefore, proposes comprehensive debt relief that is oriented around green, inclusive recovery.

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