Debt-for-climate swaps proposed as win-win solution in Jordan

AMMAN — Jordan is exploring the idea of converting its debt into investments in environmental projects as it could offer both debt relief and promote green recovery in the country.اضافة اعلان

The idea was discussed by the Financial and Economic Committee of the Senate in a meeting last week.

“The public debt crisis is awaiting a bold response,” said Jamal Sarayrah, the head of the committee, in an interview with Jordan News. “An initiative that links debt relief to investments in climate action is an opportunity Jordan can seize given its good credit rating, international prestige, and diplomatic relations.”

The idea of debt-for-climate swaps is not a new one. Initially proposed in the 1980s, this initiative has gained traction in the wake of COVID-19 economic pressures.

According to the United Nations Economic and Social Commission for Western Asia (ESCWA) report, “debt swaps convert national debt serving payments on foreign debt into domestic investment for implementing climate-resilient projects through collaborative arrangements between debtors, creditors and donors.”

Jordan, the report explains, is a suitable candidate for debt swaps as its debt burdens threaten pandemic recovery but it remains committed to climate-resilient projects.

“This initiative will allow Jordan to fulfill its environmental commitments while ensuring increased donor support for green investments and securing exemption from paying interests on external debts,” wrote Farah Alatiat for Al-Ghad Arabic daily. “It also contributes to encouraging economic transformation and creating job opportunities.”

Looking into the economic aspect, external debt in Jordan reached about JD13.7 billion at the end of 2020, equivalent to 44.2 percent of the local GDP, according to the Ministry of Finance’s general government finance bulletin.

“High indebtedness will result in large debt service payments that will strain the general budget and drain resources that could have been pumped into capital projects that serve the well-being of Jordanian citizens,” said Sarayrah.

An initiative such as this, he explains, would help attract investments and create thousands of job opportunities across the Kingdom. Energy demand management programs, which this initiative would ultimately fund, lower industrial operational costs and promote energy efficiency by reducing the load on power generation systems.

“Reducing government spending on importing fuel and on expanding its electricity generation capacity will contribute to alleviating the chronic budget deficit and enhance the balance of trade,” Sarayrah said.

As for the environmental aspect, Jordan is currently facing the issue of water scarcity. With the impacts of climate change, this matter, paired with the accelerated population growth, Sarayrah explains, will put pressure on the local infrastructure.

The debt-for-climate swap agreement would help reduce greenhouse gas emissions and air pollutants, which would improve public health and help Jordan meet its international agreements, he said.

“Developing a well-strategized debt swap mechanism can support countries in building forward better, boosting economic transformation, and accelerating the achievement of the Sustainable Development Goals and the Paris Agreement,” the ESCWA report states.

In order to implement an extensive economic and environmental project on this level, planning, coordination, and negotiations are needed by several entities.

“The Ministry of Finance should take the lead because it is the primary party concerned with solving the public debt crisis,” said Sarayrah.

Yet, he also named a number of agencies that should participate, including the Ministry of Energy and Mineral Resources, the Ministry of Environment, the Jordan Renewable Energy and Energy Efficiency Fund, the Jordan Green Building Council, and the National Energy Research Center, among others.

Dialogues between involved entities, per the ESCWA report, is the first step to the process. “These are to identify a portfolio of climate-resilient investment projects that are aligned with national plans, and are of potential interest to sovereign creditors,” the report states.

“Engaging in political consultations with Jordan’s creditor countries -— the United States, the European Union, Germany, France, the United Kingdom, Japan, the World Bank, the International Monetary Fund — is necessary to generate interest in the idea of debt-for-climate swaps,” said Sarayrah. After that, a legitimate, credible, and transparent institutional framework should be designed.

While this initiative requires significant preparation, it can prove very useful for Jordan if implemented correctly.

“When developing the initiative, decision-makers must prioritize the issues of poverty, unemployment, vulnerability and inequality,” said Sarayrah. “This can help achieve developmental goals that carry social, economic, environmental benefits”

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