The climate crisis’s intensifying impacts are exacerbating existing vulnerabilities and creating new economic pressures. Countries face the challenge of juggling immediate development needs, inequality, poverty, health care, infrastructure gaps, and climate vulnerability. At the same time, the burden of debt severely constrained fiscal space, limiting government spending across all sectors, including critical climate investments. As a result, climate spending is not only competing with other domestic priorities but also being squeezed by debt obligations, leaving these countries with fewer resources to address the growing climate threats and their commitments to international climate pacts like the Paris Agreement’s nationally determined contributions.

Debt-for-nature (DNS) swaps offer a potential pathway to alleviate this cycle for some countries. By converting a portion of a country’s debt into investments in environmental conservation, DNS can provide both debt relief and critical funding for climate spending; its potential remains largely untapped. This paper examines the Galápagos 2022 DNS as a case study to explore how this approach can be replicated by other countries to open fiscal space while promoting climate action and in LMIEs.

This paper can be accessed here.

This paper is authored by Veronica Jijon, ORF, New Delhi.