Debt-for-nature swaps: Belize’s 2021 exchange and the future of climate finance

This work explores the role of debt-for-nature swaps (DFNS) in tackling the critical interplay between sovereign debt fragility and climate change vulnerabilities, particularly in developing nations. The core problem addressed is the limited fiscal capacity for cli￾mate action in highly indebted countries, compounded by the historical shortcomings of traditional DFNS in delivering substantial, legally binding environmental commitments. To investigate this, this work analyses Belize’s 2021 debt-for-nature exchange, high￾lighting its pioneering financial and legal advancements. A key focus is placed on how Belize’s agreement uniquely tied conservation payment obligations directly to its Blue Loan. This is contextualised by comparing Belize’s deal with preceding and subsequent Blue Bond-based restructurings to assess its replicability and broader implications for climate finance. Furthermore, it empirically examines the impact on Belize’s economy and climate resilience through macroeconomic and environmental indicators, ultimately employing a Synthetic Control Method (SCM) analysis. Belize’s 2021 DFNS established a robust and archetypical model for future transac￾tions by legally integrating conservation and debt payment obligations. Despite its modest immediate debt relief, the swap significantly contributed to both Belize’s debt sustain￾ability and marine conservation efforts, setting a precedent for enhanced accountability in Environmental, social or governance themed (ESG) instruments. The findings suggest that while scalability challenges exist, such operations offer a viable pathway for pro￾viding combined debt relief and environmental funding to vulnerable nations in the right context, in a landscape where current demand for these is stronger than the supply