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Debt-for-climate swap deal will lighten Nigeria’s debt burden, says Osinbajo

By Terhemba Daka, Abuja
05 September 2022   |   4:00 am
Vice President Yemi Osinbajo has said the Federal Government stands the chance to reap huge debt relief from creditors ranging in billions of dollars if Nigeria’s push for a Debt-For-Climate swap deal, tabled last week in the United States at different fora, including the White House, is widely accepted.

Vice President Yemi Osinbajo PHOTO: INSTAGRAM/YEMI OSINBAJO/SCREENGRAB

Vice President Yemi Osinbajo has said the Federal Government stands the chance to reap huge debt relief from creditors ranging in billions of dollars if Nigeria’s push for a Debt-For-Climate swap deal, tabled last week in the United States at different fora, including the White House, is widely accepted.

The idea described as fresh thinking in Washington D.C. by senior American government officials is already receiving positive reviews even as Prof Osinbajo explained the potential for significant debt cancellation for African countries.

According to a statement yesterday by his Senior Special Assistant on Media and Publicity, Laolu Akande, Osinbajo also described the idea as a Climate Change-related financing instrument deserving of global consideration as it is a win-win proposal.

The VP had first proposed the idea on Thursday during a lecture on a just and equitable energy transition for Africa at the Center for Global Development in Washington D.C, USA.

In the subsequent meetings with top U.S. government officials, the VP had pushed the Debt-for-Climate idea saying “debt for climate swaps is a type of debt swap where bilateral or multilateral debt is forgiven by creditors in exchange for a commitment by the debtor to use the outstanding debt service payments for national climate action programmes.

He explained that “the creditor country or institution agrees to forgive part of a debt, if the debtor country would pay the avoided debt service payment in a local currency into an escrow or any other transparent fund and the funds must then be used for agreed climate projects in the debtor country.”

Justifying the rationale for the concept, the VP noted that the proposed Debt-for-Climate swaps would be a useful intervention and helpful as it will reduce debt burdens while advancing the Climate Change objectives of the international community.

He also pushed the idea of opening up the Carbon Market in Africa so that the Climate Change actions of African countries can be adequately verified by the international community through the assessments of the appropriate verification institutions.

“We are hoping to get support and international buy-ins for these ideas,” he said, specifically the DFC and the participation of African countries in the international carbon market.

Responding to the Debt-for-Climate proposal, the Administrator of USAID, Samantha Power, told the Vice President that the idea is “fresh thinking that is very exciting.”

She added that the U.S. is open to such new thinking even though it would require the full policy review of the American Government.

“Experts say under the DFC, sovereign debtors and international creditors will forgive all or a portion of external debt often running into billions in a country like Nigeria, in exchange for a commitment by the country to invest, in domestic currency, in specific climate or energy transition projects during a commonly agreed period.

“The expectation is that Debt For Climate swaps will reduce the level of indebtedness and free up fiscal resources to be invested in clean energy projects in Nigeria and other countries signed up for the programme once accepted by creditor-nations,” the statement read.

Likewise, the VP at his CGD address also proposed a significant addition to conventional capital flows both from public and private sources to Africa through greater participation in the global carbon finance market.

“Currently, direct carbon pricing systems through carbon taxes have largely been concentrated in high and middle-income countries. However, carbon markets can play a significant role in catalyzing sustainable energy deployment by directing private capital into climate action, improving global energy security, providing diversified incentive structures, especially in developing countries, and providing an impetus for clean energy markets when the price economics looks less compelling – as is the case today,” he said.