1. ECLAC’s PROPOSAL ON DEBT FOR CLIMATE ADAPTATION SWAPS:
A STRATEGY FOR GROWTH AND ECONOMIC TRANSFORMATION OF CARIBBEAN ECONOMIES
CARICOM – UN HIGH LEVEL PLEDGING CONFERENCE Building a More Climate – Resilient Community
November 2017

2. Structure of the Presentation
Stylized facts
Underlying causes of the debt burden
A response to the Caribbean’s debt challenge
Conclusion

3. Caribbean Public Debt, 2015
Domestic
External
Total
(USD millions)
(Per cent of GDP)
Anguilla
18.6
60.2
78.8
24.6
Antigua and Barbuda
562.8
581.1
1,143.9
84.4
Bahamas
5,284.6
2,169.3
7,453.9
84.2
Barbados
3,185.1
1,609.7
4,794.8
109.9
Belize
247.2
1,175.8
1,423.0
82.6
Dominica
125.5
279.3
404.8
78.3
Grenada
252.9
600.8
853.7
86.8
Guyana
395.6
1,143.0
1,538.6
48.4
Jamaica
7,371.5
10,331.3
17,702.9
126.8
Montserrat
0.0
3.4
5.7
Saint Kitts and Nevis
360.8
213.0
573.7
65.5
Saint Lucia
615.0
498.8
1,113.8
77.8
Saint Vincent and the Grenadines
198.8
380.3
579.1
78.5
Suriname
1,070.9
1,056.5
2,127.4
51.6
Trinidad and Tobago
9,623.4
2,490.2
12,113.6
51.2
Caribbean total
29,312.8
22,592.7
51,905.5
70.4*
Caribbean countries are among the most highly indebted in the world. In 2014, four of the twenty most indebted countries in the world (by public debt to GDP ratio) were Caribbean – Antigua and Barbuda, Barbados, Grenada and Jamaica. In that year, the total debt burden amounted to US$49 billion, or 70 percent of subregional GDP.

4. External debt structure
COMPOSITION OF TOTAL PUBLIC DEBT, 2015
(Per cent of GDP)
JAM (Jamaica). BRB (Barbados). GRD (Granada). ANT (Antillas Holandesas). BHS (Bahamas). BLZ (Bélice). VCT (San Vicente y las Granadinas). DMA (Dominica). LCA (Santa Lucía). KNA (San Cristóbal y Nieves). SUR (Suriname). TTO (Trinidad y Tobago). AIA (Anguila). MSR (Montserrat).
Multilateral and bilateral debt represents 39 percent and 14 percent of total external debt, respectively. The external debt structure varies across individual countries. Debt from private creditors was greater than 45 percent for three of the seven countries, Belize (49 percent), Grenada (45 percent) and Jamaica (57 percent).
The prominence of private creditors in Belize, Grenada and Jamaica can be attributed to the reduced access to finance and the compulsion to access bond and other related market instruments. Conversely, debt from official lenders dominates the overall credit landscape for the remaining four countries (Dominica, Guyana, Saint Lucia, and Saint Vincent and the Grenadines) accounting for at least 67 per cent of the total external debt.

5. Underlying causes of the debt burden

6. Origins of Caribbean Debt
Not principally driven from policy missteps, fiscal profligacy or the international financial crisis.
Rooted in external shocks, compounded by the inherent structural weaknesses and vulnerabilities, particularly extreme weather events
The Caribbean’s high debt dilemma was not principally driven from policy missteps, fiscal profligacy or the international financial crisis. Rather, it has its roots in external shocks, compounded by the inherent structural weaknesses and vulnerabilities confronting Caribbean SIDS and their limited capacity to respond.
The debt decomposition suggests that unanticipated shocks were significant reason for debt accumulation. A major factor has been the declining performance of the export sector, partly due to a decline in competitiveness and a slowdown in economic activity initially among the tourism-dependent economies.

7. Damage from Caribbean Disasters, 2000-2014 (2013 US$ millions; percentage)
A disaster resulting in damage and losses in excess of 5 per cent of GDP can be expected to hit any Caribbean country every few years.
Countries have also accumulated debt as a consequence of increased expenditures to address the impact of extreme events and climate change attendant difficulties. Most Caribbean countries are located in the hurricane belt and are also prone to earthquakes and other hazards.
A disaster resulting in damage and losses in excess of 5 per cent of GDP can be expected to hit any Caribbean country every few years.
During the period , it is estimated that the economic cost of natural disasters in Caribbean countries was in excess of US$30.7 billion.
EM-DAT database is compiled by the Centre for Research on the Epidemiology of Disasters (CRED, 2004).

8. Climate Change Vulnerability
A 1.8mm annual increase in sea level has been observed in the Caribbean
It is estimated that 70% of beaches will lose M of shoreline a year
This will damage infrastructure and housing
Coastline losses have a greater impact on the economy as a result of loss of tourism receipts
Beyond exposure to natural disasters, climate change represents the most serious challenge to the sustainable development of the Caribbean .
The Intergovernmental Panel on Climate Change has observed in the Caribbean an increase in sea level of about 1.8 mm per year. The consequences of this increase in sea level associated with increased ocean temperatures are visible in the subregion.
It is estimated that 70 percent of the beaches are affected by loss of shoreline at a rate of between 0.25 and 9 meters per year. This loss causes damage to private and public infrastructure (roads, airports, power generators, etc.), this is particularly critical because it is estimated that 70 per cent of the population lives in coastal areas.
Similarly, the loss of coast negatively affects the quality of coastal and marine resources, which has two main effects: first, a reduction in protection against storms and hurricanes, accelerating erosion and causing damage to infrastructure.

9. The upper middle and high income problem
The upper middle and high income classification of the majority of Caribbean countries poses a number of challenges:
Limited access to concessional external finance
Decline on ODA to the Caribbean
GDP per capita criteria failures to take into account threats from natural disasters such as hurricanes as well as economic shocks
The upper middle and high income classification of the majority of Caribbean countries based on “level of per capita income has posed a number of challenges. These include:
Limited access to concessional external finance to alleviate high debt burden, because of perceived sovereign debt risk, as well as to redress effects of retarded growth and development.
Steady decline on ODA to the Caribbean since the 1990s
Per capita income measure does not take into account threats such as hurricanes
International cooperation is concentrated on alleviating poverty and targets lower income countries because it is assumed that growth in income implies that more resources are available to combat poverty and finance development

10. A response to the Caribbean’s debt challenge
In response to the Caribbean development conundrum a regional solution is needed to solve the debt problem and provide the resources needed for structural transformation and sustainable economic growth

11. ECLAC proposal has been discussed at
36Th CARICOM Heads of Governments meeting July 2015
ECLAC’s Caribbean Development Roundtable held in St Kitts and Nevis during April 2016
Heads of Government in their report to the 37th CARICOM Conference, agreed that ECLAC should pursue the initiative “to the extent feasible, on behalf of the region”
ECLAC proposes a debt for climate change swap, which involves channeling pledged climate funds to write down Caribbean debt and lead to the creation of the Caribbean Resilience Fund (CRF) for resilience capacity building through financing investment in climate change mitigation and adaptation.
The CRF could be managed by a credible financial institution
This proposal requires the interaction between multilateral institutions, donor countries, and small states debtor counties.  

12. The need of a debt Relief initiative for the Caribbean.
How Caribbean economies can mitigate and adapt to the consequences of climate change while trying to reduce the debt burden, increase growth and achieve the SDGs
Policy measures such as fiscal consolidation; prudent management of fiscal debt; and structural reforms aimed at improving economic growth, while having some measure of success in a few economies have thus far been unable to solve the Caribbean’s high debt-low growth conundrum.
It is important to address the Caribbean’s debt dilemma in a sustainable manner while fostering structural change and economic diversification. Region’s debt burden, as well as its growth, is closely intertwined with climate related natural disasters. Hurricanes, tropical depressions, floods, droughts, the gradual rise in sea level, etc. all impact negatively of the region’s economic development.
ECLAC proposes a debt for climate change swap, which involves channeling pledged climate funds to write down Caribbean debt and lead to the creation of the Caribbean Resilience Fund (CRF) for resilience capacity building through financing investment in climate change mitigation and adaptation.
The CRF could be managed by a credible financial institution
This proposal requires the interaction between multilateral institutions, donor countries, and small states debtor counties.  

13. The essence of ECLAC proposal
Channeling pledged climate funds to write down Caribbean debt through debt-for-climate-adaptation swap (in line with the Commonwealth Secretariat’s proposal).
Creation of the Caribbean Resilience Fund (CRF)
Would be expected to provide financing for investment in climate resilience, green growth and structural transformation in the economies of the region.
The ECLAC approach recognises that Caribbean debt is heterogeneous; member states carry varying combinations of multilateral, bilateral and private debt which requires a menu approach.
ECLAC proposes a debt for climate change swap, which involves channeling pledged climate funds to write down Caribbean debt and lead to the creation of the Caribbean Resilience Fund (CRF) for resilience capacity building through financing investment in climate change mitigation and adaptation.
The CRF could be managed by a credible financial institution
This proposal requires the interaction between multilateral institutions, donor countries, and small states debtor counties.  

14. Menu approach Addressing multilateral and bilateral debt
Pledged Green Climate Funds (GCF) would be used to finance a gradual write down of 100 per cent of the Caribbean SIDS’ multilateral debt stock held at various multilateral institutions, as well as their bilateral debt. This would be contingent on debtors agreeing to make annual payments into a Caribbean Resilience Fund (CRF) in an amount equal to the discounted debt service payments (a haircut).
Addressing debt to private creditors
Debt buyback scheme using the GCF, designed to reduce debt service payments and the debt stock. Such a scheme could be pursued on the basis of a discount in the secondary markets and new loan agreements by creditors at lower costs. The savings from interest would be used to fund CRF. The menu could also offer debt for equity swaps in the cases where the debt is held by domestic commercial banks.

15. Overview of the Logistics of the ECLAC Debt Relief and Resilience Building Initiative
Creditors
Climate Finance Sponsor / Green Fund
Debtor Governments
Bilateral Donors
Former debt service obligations
Discounted debt Service payments
Grants, and invested funds
Caribbean Resilience Fund (Managed by CDB, IDB, GCF), project evaluation
ECLAC, Governments, NGOs
Environmental / Climate Adaptation and Mitigation Projects
Projects
Project Finance
Reporting Framework
Technical support and Project development

16. Road Map for Implementing the Proposal
Phase 1
Organize the task force
Identify the scope of the initiative
Develop timelines, access resources to assist the work of the task force
Assess GCF capacity and willingness to addres the initiative.
Establish resiliance fund management criteria
Phase 2
International advocacy with various governments, agencies and funds
Domestic consultation and collaboration with a member state to demonstrate feasibility of debt swap
Outline the specificities of debt swaps strategies for one or two countries.
Phase 3
Present the initiative and strategy of debt swaps to the GCF
Modify the initiative to meet concerns of GCF, member states and creditors
Phase 4
Prepare more member states for participating in the debt swap initiative
Assess the extent to which the initial proposal can be fully implemented

17. Through this proposal ECLAC hopes to channel the pledged climate funds to Caribbean countries, reducing their current debt burden while at the same time providing financing for projects to reduce their vulnerability to future climate change effects.