Exploring solutions to the Caribbean debt challenge: Debt reduction through financing for climate adaptation swaps and a Caribbean Resilience Fund

For Caribbean SIDS in particular, COP21 represents the culmination of an important process of advocacy over the past year that began
with the adoption of the SAMOA Pathway on SIDS, and was punctuated by the Addis Ababa
Action Agenda for financing development in July and by the global endorsement in September
of the new Sustainable Development Goals.

The Paris meeting, the next vital phase in this continuum, will afford us renewed perspective on
the integrated development issues that define the economic, social and environmental
vulnerability of Caribbean SIDS, with special emphasis on the significant exposure of these
island and coastal states to the varied impacts of climate change. The region is currently
shouldering a serious debt burden, the proportions of which threaten to erode the gains made.
Given the bleak medium term outlook for growth, there can be no doubt that something must be
done.

An ECLAC assessment of the debt profile of the Caribbean subregion determined that countries
can be placed into three categories, based on their debt structure: the highly indebted countries
whose debt to GDP ratios range between 99% and 135% of GDP, and whose debt servicing
absorbs a significant proportion of public expenditure; the moderately indebted with
commitments ranging between 41% and 77 % of GDP; and those few countries whose debt averages some 31 % of GDP. Eleven Caribbean states fall in the first two categories, eight of
these carrying debt to GDP ratios in excess of 60%, the level adjudged by the IMF as the
threshold for unsustainable debt.

The fiscal adjustment demands on these economies have been intense, with noticeable spillovers
across the region, including in the area of trade. In the case of the high and moderately indebted,
the significant overhang has constrained their access to international finance despite the
availability of low international interest rates. For some countries considerable efforts at
adjustment have been insufficient to reduce the stubborn debt burden. There is no respite for
these countries which, despite their vulnerability to climate change and extreme weather events,
are categorized as middle income and, by implication, considered capable of fending for
themselves.

It is in the context of these circumstances that ECLAC is offering a proposal for debt relief,
which can at once help to free-up fiscal space while responding directly to the need for
Caribbean SIDS to build their resilience and strengthen measures for adaptation to climate
change. While Caribbean countries are entitled to climate funds, they have thus far had little
success in accessing them. Consideration is now being given to leveraging such funds for debt
reduction in the Caribbean.

This side event provides an opportunity to explore, from a Caribbean perspective, the
possibilities for integrating the twin imperatives of pursuing climate resilience and debt
reduction. It is being presented in partnership with the Commonwealth Secretariat, which has
been a thought leader on the notion of climate finance swaps to provide debt relief over the past
few years, thereby providing a valuable foundation on which the ECLAC proposal has been
developed.