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  • Wednesday, 17 April 2024

During a high-level session organized by the International Monetary Fund and ESCWA on debt swaps for climate action, with the participation of the ESCWA President and high-level officials: Minister of International Cooperation, Dr. Rania Al-Mashat: Debt swap for climate action enhances solidarity between debtor and creditor countries to advance the SDGs and reduces financial pressures on developing countries

● Despite international interest in debt swaps, their sizes are still low and have not reached the level of ambition of developing and emerging countries.

● The Minister of International Cooperation presents Egypt’s experience in debt swap for development with Italy and Germany and the first debt swap program of its kind with China.

● Egypt has a debt swap experience with Germany and Italy that resulted in projects that achieved progress in many development sectors.

● We work through an integrated approach and clear governance rules to maximize the benefit from debt swap programs and direct them towards priority projects.

● Countries in the African continent incurred $69 billion in debt service payments in 2023, while suffering from a gap ranging between $200 to $400 billion in climate financing.

● We succeeded in signing the first memorandum of understanding of its kind for a debt swap with China. We also signed a debt swap tranche with Germany to promote the green transition in the field of energy.

Dr. Rania Al-Mashat, Minister of International Cooperation and Governor of Egypt at the World Bank Group, participated in a high-level event organized by the International Monetary Fund (IMF) and Economic and Social Commission for Western Asia. (ESCWA), on “Debt Swap for Climate Action,” with the aim of discussing the debt swap mechanism based on climate-related programs and the implementation of Sustainable Development Goals (SDGs), as a tool to enhance countries' fiscal space in order to expand investments.

The session also included Dr. Mahmoud Mohieldin, Executive Director of the IMF and United Nations Special Envoy for Financing the 2030 Agenda for Sustainable Development; Dr. Rola A. A. H. Dashti, Executive Secretary of the ESCWA; and Mr. Dirk Meyer, Director General for Multilateral Development Policy at the German Federal Ministry for Economic Cooperation and Development; Mr. Ananthakrishnan Prasad, Advisor and Unit Chief of Monetary and Capital Markets in the IMF, and many others.

Debt Swap Initiative for Climate Action and Sustainable Development Goals

In H.E.’s  speech during the session, the Ministerstressed the importance of the initiative launched by ESCWA on debt swaps for climate action, which provides an opportunity for debtor and creditor countries to join in solidarity in order to accelerate the pace of implementation of the SDGs, achieve recovery and enhance development cooperation in a way that enables countries to achieve development and implement the Paris Climate Agreement. This is in light of the major financial pressures facing developing and emerging economies as a result of debts that have worsened significantly since the outbreak of the COVID-19  pandemic in 2020 and the subsequent food and energy crisis resulting from the war in Europe and geopolitical challenges.

The Minister explained that these initiatives would contribute to alleviating financial pressures on developing countries and emerging economies, and supporting them in implementing development plans, by reducing outstanding external debt payments and converting them into local investments to implement projects in the areas of mitigation and adaptation to climate change, and financing the implementation of the SDGs.

Al-Mashat stated that what guarantees the success of these initiatives is that they are consistent with the national priorities of each country, in order to increase the financial space available to implement development programs and climate action, in addition to the necessity of establishing them on a participatory basis between various entities, whether governments, international financing institutions, or civil society. This intensifies the efforts made to maximize the impact of these initiatives.

H.E.  stressed that the debt swap initiative is consistent with the needs of developing countries, especially the countries of the African continent, which face a large gap in climate financing, ranging from $200 to $400 billion annually until 2030. At the same time, the countries of the continent incurred about $69 billion dollars in debt service payments in 2023 to serve outstanding sovereign debts, pointing out that despite the international interest in debt swaps for climate action and development, the size of debt swap programs globally is still low and does not reach the level of ambition of developing and emerging countries.

The Egyptian Experience in Debt Swaps

The Minister reviewed the Egyptian experience in the field of debt swaps, which is one of the innovative mechanisms within the framework of international cooperation and development financing, explaining that over the course of approximately 20 years, two successful debt swap programs for development were implemented with Italy and Germany, amounting to about $720 million dollars.

Through them, 120 projects were implemented in various fields of development, as the value of the exchange program with the Italian side amounted to $350 million to support the achievement of sustainable development in Egypt in line with national goals. In addition, the government of the Federal Republic of Germany agreed, during the G8 summit in Deauville in May 2011, to offer a debt swap worth €240 million to implement development projects in Egypt aimed at enhancing job creation, private sector competitiveness, and energy.

H.E. explained that what distinguishes the Egyptian experience in the field of debt swap is that it is based on an integrated approach and clear and precise governance rules to maximize the benefit of these programs, achieve measurable results, and implement specific priority projects in many sectors, including food security, such as the inauguration of field silos and the development of technological systems, fish farming projects, and waste management, as well as projects to develop education, promote green transformation, empower women, protect children, and other priority projects.

Debt Swap for Climate Action

The Minister noted that debt swap programs were previously directed to development projects of various types, but with the increase in the negative effects of climate change, the rise of climate action on the agenda of the international community, and the increase in financial burdens on developing countries and emerging economies, the need for debt swap initiatives and programs has increased to address climate action.

She pointed out that within the framework of the “NWFE” program and in implementation of what was stated in the joint political declaration between Egypt, Germany and the United States, a debt swap tranche is being implemented with Germany to support the energy pillar within the program, which is one of the projects aiming to shift towards renewable energy, and a tranche worth €54 million has already been signed. This is to develop the transmission network to integrate renewable energies into the electricity transmission network and strengthen the network. The project contributes in particular to the establishment of two substations and the connection of two wind farms (the “Amyunt” farm and the Red Sea wind farm) with a capacity of 500 megawatts each to the national transmission network. She added that the NWFE program includes integrated projects that attract investments and include various innovative financing tools, including debt swaps, development grants, concessional financing, and private sector investments, in a way that enhances climate action efforts in Egypt.

The 1st Debt Swap Program with China

In addition, Egypt has succeeded in signing a memorandum of understanding, the first of its kind, for a debt swap program with China, which is the first in the history of cooperation between Egypt and China, as well as the first that China has signed with other countries.

The Minister of International Cooperation called on the international community to stimulate the expansion of debt swap programs for climate action in a way that reduces financial burdens and enhances the trend towards achieving sustainable development goals.