Debt-for-Climate swap could help address COVID-19 debt

Former Central Bank Governor, now Senior Advisor to the Pacific Islands Forum, Denton Rarawa.
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WITH rising debts in the Pacific due to impacts of Covid-19, the Pacific Islands Forum secretariat (PIFS) is heading to the Forum Economic Ministers Meeting later this month with a string of proposals aimed at helping nations in their recovery process.

A Debt-for-Climate swap based around the proposed Pacific Resilience Facility (PRF) would help communities be better prepared for disasters while at the same time easing the need to add to the government debt burden.

Since the COVID-19 pandemic began, Pacific nations have accumulated a total debt of $1.6 billion, according to former Governor of the Central Bank and Senior Economic advisor to the PIFS, Denton Rarawa.

Rarawa told a team of Pacific Journalists this week that most regional countries are classified as high debt risk countries.

“Even before the Covid-19 issue, most countries in terms of growth have been slow or lower so governments have been experiencing economic difficulties even before COVID-19,” Rarawa said.

“When COVID came it exacerbated the whole situation,” he added.

The Pacific Resilience Facility, an initiative of Pacific Forum leaders – will be the only Pacific-owned and controlled climate fund.

Once it is established it will offer small grants for projects such as community centres and schools that can also be used as evacuation centres, transport links, wharves and coastal defences.

But first Pacific leaders must find USD$1.5 billion in capital for the fund – not an easy task in difficult economic times.

Rarawa said PIFS believes the Pacific Resilience Facility could be used as a vehicle to implement a debt swap.

“The idea is to get (Pacific) countries to contribute to this Facility and use those contributions as a means of off-setting our debts … this is the proposal that we are taking to the ministers,” he said.

The proposal for a Debt-for-Climate swap based on the PRF would allow Pacific countries to pay debt repayments to the PRF instead of creditors creating a sustainable financing model.

Rarawa said the Forum is working on soliciting support from traditional and non-traditional partners towards capitalisation of the Pacific Resilience Facility.

“We are also proposing a Regional Debt Conference to be convened at the end of the year or maybe in the 1st quarter of 2022.

“This is to allow debtor countries and creditors to come together to resolve the debt issue in terms of debt relief and debt restructuring so on and so forth.”

Solomon Islands government debt is significant and growing.

In his budget speech Minister of Finance and Treasury, Harry Kuma noted Solomon Islands debt to GDP ratio had reached around 11.7 percent at the end of December 2020.

“This is a sustainable level. However, at this level of debt, the Solomon Islands has limited capacity to borrow fund for its needed development.”

In a statement, the Central Bank of Solomon Islands said the Government’s debt rose from $1,074 million at the end of 2019 to SBD$1,451 million in 2020.

This is an increase of 35 percent or $377 million, much of it related to covid-19 borrowing.