Osinbajo Says Debt-for-climate Initiative Will Reduce Nigeria’s Debt Burden
The Vice President of Nigeria, Prof. Yemi Osinbajo, has said the Federal Government will reap a huge debt relief from some creditors in dollars if Nigeria’s idea for a Debt-for-Climate swap deal is widely accepted.
A statement said during his meetings with top officials of the US government after his speech at the Centre for Global Development on Thursday, he advocated for the DFC idea, which he had previously proposed publicly, first at the Centre for Global Development.
Osinbajo said, “The proposed Debt-for-Climate swaps would be a very useful intervention and helpful as it will reduce debt burdens,” while advancing the climate change objectives of the international community.
He also described the idea as a climate change related financing instrument deserving global consideration, adding that it is a win-win proposal.
The VP pushed for the idea of opening up the carbon market in Africa so that the climate change actions of African countries could be adequately verified by the international community through the assessments of the appropriate verification institutions.
“We are hoping to get support and international buy-ins for these ideas, specifically the DFC and the participation of African countries in the international carbon market,” he said.
He reiterated that the DFC would help solve many of the debt burden challenges in Nigeria and other countries.
Osinbajo, had in his CGD speech explained that the “DFC swaps is a type of debt swap where bilateral or multilateral debt is forgiven by creditors in exchange for a commitment by the debtor to use the outstanding debt service payments for national climate action programmes.
“Typically, the creditor country or institution agrees to forgive part of a debt, if the debtor country would pay the avoided debt service payment in a local currency into an escrow or any other transparent fund and the funds must then be used for agreed climate projects in the debtor country.”
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Justifying the rationale behind such a debt swap deal, the Vice President said the commitment to it would increase the fiscal space for climate-related investments and reduce the debt burden for participating developing countries.
The VP at the CGD speech also proposed a significant addition to conventional capital flows both from public and private sources to Africa through a greater participation in the global carbon finance market.
Responding to the DFC proposal, the Administrator of United States Agency for International Development, USAID, Samantha Power, told the Vice President that the idea is “fresh thinking that is very exciting,” adding that the US was open to such new thinking even though it would require the full policy review of the American government.
Experts say under the DFC, sovereign debtors and international creditors would forgive all or a portion of external debt often running into billions in a country like Nigeria, in exchange for a commitment by the country to invest in domestic currency, in specific climate or energy transition projects during a commonly agreed period.
The expectation is that DFC swaps would reduce the level of indebtedness and free up fiscal resources to be invested in clean energy projects in Nigeria and other countries signed up for the programme once accepted by creditor-nations.
While in Washington D.C. recently, the VP met with his American counterpart, VP Kamala Harris, at the White House; the US Secretary of the Treasury, Janet Yellen, and the USAID Administrator Samantha Power.
He also held an interactive session with a group of Nigerian staff members of the World Bank and the IMF, before he spoke at the Centre for Global Development.
