Opinion: How a debt-for-nature swap could be used for Rwanda’s parks

Despite the region’s rich biodiversity, debt-for-nature swaps are an underutilized climate finance mechanism in sub-Saharan Africa. In Rwanda, debt-for-nature swaps could simultaneously decrease the country’s external debt burden and provide financing for ecosystem restoration and rehabilitation. Debt-for-nature swaps have been used for over 35 years to increase climate finance for environmental conservation and restoration in emerging economies. Since 1987, around 140 debt-for-nature swaps have occurred, totaling over $3 billion. According to available data, the Latin America and Caribbean region has benefited the most, with nearly 84%, or $2.5 billion, of the total value of transactions. Europe is the second-highest recipient of debt-for-nature swaps, with $141.1 million received by Poland and $16.2 million by Bulgaria. By contrast, sub-Saharan Africa has only received 4% of the value of all debt-to-nature swaps, with the largest swaps occurring in Madagascar and Cameroon. A new debt-for-nature swap is currently being planned for Gabon, which could potentially amount to $500 million through the release of a blue bond. The case for debt-for-nature swaps in Rwanda Rwanda is classified as a low-income country with plans to surpass the threshold of becoming a middle-income country by 2035 and targets becoming a high-income, net-zero country by 2050. Rwanda’s economy grew by 10.9% in 2021 followed by a period of contraction during the COVID-19 pandemic. The country aims to continue its rapid economic growth while reducing greenhouse gas emissions by 38% by 2030. To do so, according to its updated nationally determined contribution report, the government plans to mobilize $11 billion ($5.7 billion for mitigation measures and $5.3 billion for adaptation). Despite the challenges presented by the post-COVID economic recovery, Rwanda recently announced its successful repayment of a $400 million Eurobond. The repayment was seen as a demonstration of financial stability. Rwanda is consistently rated positively in terms of debt repayment and has a moderate risk of external debt distress risk according to the 2020 Joint World Bank-IMF Debt Sustainability Analysis. The majority of Rwanda’s debt has been incurred to fund large-scale infrastructure projects including the Kigali Convention Center and the construction of the new international airport in Kigali. Debt forgiveness and waivers have recently been executed in Rwanda: In 2022, China agreed to cancel $7.1 million in debt as part of an effort to support the post-COVID economic recovery of Rwanda. Rwanda’s debt-to-gross national income ratio — which indicates the likelihood and ability of a country to repay debt — has steadily increased in recent years. Total external debt stocks reached $9.32 billion in 2021, resulting in a debt-to-GNI ratio of 82.94% (as of 2021), the ninth-highest in Africa. <iframe src="https://ourworldindata.org/grapher/external-debt-as-a-share-of-gni?tab=chart&country=~RWA" loading="lazy" style="width: 100%; height: 600px; border: 0px none;" allow="web-share; clipboard-write"></iframe> Rwanda’s external debt as a share of GNI, 1970 to 2021. While the debt-to-GNI has steadily increased, the government has also announced several commitments to ensure the protection of forested areas and designated national parks such as the Gishwati-Mukura National Park and Biosphere Reserve. Within Rwanda’s 2020 Updated NDC Report, $16.8 million will be needed to promote afforestation and reforestation of designated areas. Plans also include efforts to extend the current boundaries of the Volcanoes National Park. The VNP expansion project aims to mobilize $255 million for ecosystem restoration and monitoring and evaluation of the extended park area. The existing VNP area covers 16,000 hectares and is home to mountain gorillas that are currently critically endangered. A 23% expansion of the park area would provide an extended buffer zone to reduce human-wildlife conflicts, increase carbon sequestration, and provide a larger habitat for the park’s growing population of mountain gorillas — while increasing climate resilience. How a debt-for-nature swap would work A debt-for-nature swap could be used as an innovative climate finance mechanism to facilitate the expansion of the park as part of Rwanda’s environmental conservation efforts. This would require a commitment on the part of one (or more) creditors to agree to a restructuring (or relief) of a portion of debt being held. This would be predicated on the identification of a debt holder that has interests aligned with the preservation of biodiversity and protection of natural resources. The debt relief savings could then be used for the park’s expansion and potentially to support technical assistance and capacity building activities, similar to the €2.4 million agreement between Mozambique and Belgium. Such a debt-for-nature swap could be facilitated by one of Rwanda’s bilateral creditors, which currently hold a combined $836.4 million of Rwanda’s debt, or negotiated through a collective of multiple countries under the Paris Club, which holds $287.8 million of Rwanda’s debt. Given Rwanda’s increasing debt coupled with its commitment to environmental preservation, a debt-for-nature swap could alleviate a portion of Rwanda’s externally held debt while enabling resources to be directed toward meeting the country’s priorities for environmental conservation.