While we can all agree that the current development finance system is outdated and in need of reform, the exact changes needed to better serve lower- and middle-income countries are part of an important and urgent debate. One option that deserves serious consideration is debt swaps, which are transactions that allow a government to refinance, at lower cost, existing commercial debt and rechannel the savings into specific development goals.
At the end of this month, Spain will host the Fourth International Conference on Financing for Development. This once-in-a-decade event is a critical and challenging moment for the world to discuss and shape how countries can support sustainable progress where it’s needed most.
Drastic aid cuts, crippling debt costs, and a narrowing range of fiscal policy options are jeopardizing progress on development in the world’s lowest-income nations. To solve this crisis, we need a smarter toolbox, and debt swaps are an important financial instrument capable of unlocking long-term development funding and reducing debt burdens. Borrowers should look at debt swaps more closely as a tool to put sovereign debt on a more sustainable footing.