Debt-for-nature or climate swaps in public finance management

  • Received August 1, 2023;
    Accepted September 12, 2023;
    Published September 21, 2023
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/ppm.21(3).2023.54
  • Article Info
    Volume 21 2023, Issue #3, pp. 698-713
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This work is licensed under a Creative Commons Attribution 4.0 International License

Considering climate change and growing ecological threats, achieving climate neutrality requires close attention from the state and the involvement of new tools, including those of the so-called green financing. This paper aims to determine the feasibility of combining the tasks of reducing the debt burden and expanding investments in environmental programs in Ukraine, using innovative tools for public finance management, such as debt-for-nature and debt-for-climate swaps. It substantiated the necessity of coordinating debt-for-environment investment programs within the framework of Ukraine’s National Recovery Plan and initiatives implemented in Ukraine with the active participation of the World Bank Group. The advantages of this approach are ensuring clear interaction with international financial institutions and expanding the practice of greening public management.
Based on statistical data for 2009–2022, the results demonstrate the growth of negative debt dynamics and characterize limited financing environmental restoration in Ukraine. Relying on international practices, the study conducted a comparative analysis to identify the most significant characteristics of the new debt green conversion instruments as well as the advantages and limitations of their use in Ukraine. The paper offers scenarios for implementing the concept of debt-for-nature exchange in the conditions of Ukraine. It shows the result of the formation of a new debt payment profile. These findings can raise state authorities’ awareness of making proper decisions regarding debt policy and public finance management.

Acknowledgment
The study presents the results of a study conducted as part of the scientific project “Formation of the foundations of nationally rooted stability and security of the economic development of Ukraine in the conditions of the hybrid “peace-war” system” (state registration number 0123U100965).

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    • Figure 1. Growth in natural capital per capita and GDP per capita (%), 1995–2018
    • Figure 2. GDP and state debt dynamics in Ukraine in 2017–2022
    • Figure 3. State external debt, foreign exchange reserves, and foreign trade in goods dynamics in Ukraine in 2017–2022
    • Figure 4. Illustrative example of bilateral debt-for-nature initiatives
    • Figure 5. Illustrative example of a three-party debt-for-nature swap agreement
    • Figure 6. Illustration of the movement of financial flows when using debt-for-climate swaps
    • Figure 7. The restructuring part of the external state debt in exchange for a commitment to invest in nature as a part of Ukraine’s National Recovery Plan
    • Figure 8. Country risk premium and total equity risk premium for Ukraine in 2014–2023
    • Table 1. Natural capital of Ukraine (in millions USD)*
    • Table 2. Ukraine’s sovereign credit ratings
    • Table 3. Key characteristics of green debt swaps and their potential impact
    • Table 4. Debt profile
    • Conceptualization
      Svitlana Naumenkova, Volodymyr Mishchenko, Igor Chugunov
    • Data curation
      Svitlana Naumenkova
    • Investigation
      Svitlana Naumenkova, Volodymyr Mishchenko, Igor Chugunov, Svitlana Mishchenko
    • Methodology
      Svitlana Naumenkova, Volodymyr Mishchenko, Igor Chugunov, Svitlana Mishchenko
    • Project administration
      Svitlana Naumenkova, Svitlana Mishchenko
    • Supervision
      Svitlana Naumenkova, Volodymyr Mishchenko
    • Validation
      Svitlana Naumenkova, Igor Chugunov
    • Visualization
      Svitlana Naumenkova, Svitlana Mishchenko
    • Writing – original draft
      Svitlana Naumenkova
    • Writing – review & editing
      Svitlana Naumenkova, Volodymyr Mishchenko, Igor Chugunov, Svitlana Mishchenko
    • Funding acquisition
      Volodymyr Mishchenko
    • Formal Analysis
      Svitlana Mishchenko
    • Resources
      Svitlana Mishchenko