US climate pullback threatens planned debt-for-nature deals
LONDON - Billions of dollars of debt deals aimed at protecting vital ecosystems from Africa to Latin America are at risk of unravelling or may need reworking amid concerns that crucial U.S. backing is about to dry up under President Donald Trump.
The 'debt-for-nature' swaps, which reduce a country's debt in return for conservation commitments, have gained traction in recent years with deals involving the Galapagos Islands, coral reefs and the Amazon rainforest among the most prominent.
The U.S. International Development Finance Corporation has been a key player, providing political risk insurance for over half of the deals done over the last five years, accounting for nearly 90% of $6 billion of swapped debt.
A source with direct knowledge of the plans said the DFC had about five swaps in the pipeline which are now in question with CEO-in-waiting Ben Black and U.S. government efficiency chief Elon Musk both criticising its climate work.
The source did not specify how much debt was covered by the swaps but pointed out that the last few DFC-backed deals involved over $1 billion each.
Spokespeople for the White House and the DFC did not respond to requests for comment on future DFC involvement in such deals.
A DFC official who spoke on condition of anonymity confirmed to Reuters it stepped down earlier this year as co-chair of a global task force set up in 2023 to expand the use of debt swaps.
U.S. Treasury Secretary Scott Bessent has also hit out at multilateral lenders for climate change work amid a broader U.S. retreat that has seen it withdraw from the Paris Agreement to curb global warming.
Angola and Zambia and at least one Latin American country are among those whose 'debt-for-nature' swap plans risk needing to be reworked or even abandoned due to DFC uncertainty, four sources that have been directly involved in the projects said.
Angolan Finance Minister Vera Daves de Sousa said her country, which is one of the most indebted in Africa and whose rivers feed the Okavango basin vital for endangered elephants and lions, has been talking to the DFC about two potential swaps.
One is a debt-for-nature deal, the other a broader 'debt-for-development' swap tied to education and young people.
"We feel openness from them , but especially on the debt-for-development swap," de Sousa recently told Reuters.
"We respect their vision," she added. "For us there is no difference – we have opportunities on the development side, and we have opportunities on the nature side."
In Zambia, which late last year was looking closely at a swap linked to its vast national parks that are home to over 40% of Africa's elephants, things have changed too.
"We are not completely shutting down but we are not actively at it right now," its Finance Minister Situmbeko Musokotwane told Reuters, declining to specify the reason for the shift.
NEW REALITY
Generating money for conservation by exchanging costly government bonds for cheaper ones is seen as an obvious choice for smaller nations grappling with heavy debt loads and climate change pressures.
The UK-based, non-profit International Institute for Environment and Development estimates that the world's 49 poorest countries seen most at risk of debt crises could swap a quarter of the over $430 billion they now owe.
Given the signals coming from Washington, those that do should drop hopes of DFC support and look at alternatives, said White Advisory managing director Sebastian Espinosa, who has advised Barbados, Belize and Seychelles on such swaps.
Those could include credit guarantees from major multilateral development banks, potentially alongside private sector insurers and guarantors, as pioneered by the Bahamas last year.
Historically, though, DFC backing has been crucial in scaling up deals, offering up to $1 billion in political risk insurance. That protects those who buy the new lower-cost bonds if the governments involved fail to make payments.
"Who's going to step in? I don't know," said Eva Mayerhofer at the European Investment Bank, which backed a 2024 Barbados swap. "We won't be able to do debt conversions that regularly."
The Inter-American Development Bank, involved in five of the last nine debt-for-nature swaps, sometimes alongside the DFC —declined to comment on whether any of its plans were being affected.
Investment firm Nuveen's Stephen Liberatore, who has been a cornerstone investor in some debt swaps, said while substitutes for the DFC could be found, the knock-on effects were yet to be seen.
"What is the price for a private entity versus a public entity like the DFC?" Liberatore said. "Does it change the amount of savings?" which are then spent on conservation. "That's the ultimate question."
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Economic Times
20 minutes ago
- Economic Times
Donald Trump's approval rating crashes in 15 key states that US President won in 2024
Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads US President Donald Trump's approval ratings were down significantly in 15 states out of thirty-one that Republican won in 2024 Presidential elections. Trump's approval dropped in battleground states of Georgia, Arizona, Pennsylvania, Wisconsin, Nevada, North Carolina, and Michigan. Trump is also witnessing for a decease in popularity rating in Ohio, Utah, Texas, Iowa, Florida, Kansas, Indiana, and Missouri, as per rating were abysmal in traditional Democratic strongholds such as D.C, New York, California, Washington, Massachusetts, Maryland, Rhode Island, and Vermont, Newsweek reported quoting The Economist.- Fox News poll sends Trump into meltdown mode as approval tanks and loyalty from his base waversHowever, in a relief, Trump still enjoys positive approval ratings in South Karolina, Alabama, Alaska, Arkansas, and tracker shows Trump approval rating is down to 47 per cent. Morning Consult poll shows Trump's approval rating was down to 46 per cent. Trump's rating was down in survey conducted by J.L. Partners, and HarrisX/ Trump's public approval rating held steady over the last month, but Americans are becoming less supportive of his approach to immigration as his administration cracks down, according to a Reuters/Ipsos poll that closed last week on six-day poll showed 42 per cent of U.S. adults approved of the job the Republican is doing as president, unchanged from a prior Reuters/Ipsos poll conducted May 16-18. Trump's ratings have been largely stable since February and are only down modestly from the 47 per cent approval score he got immediately after returning to the White House in January. His support on immigration, however, softened to 44 per cent from 47 per cent in the economy, 52 per cent disapproved compared to 39 per cent who liked what Trump was doing. Americans also gave him generally poor marks on foreign policy, as per a report on Reuters/Ipsos survey, conducted online, gathered responses from 4,258 U.S. adults and had a margin of error of about 2 percentage points, Reuters/Ipsos poll Donald Trump still enjoys positive approval ratings in South Karolina, Alabama, Alaska, Arkansas, and Kentucky.A2. D.C, New York, California, Washington, Massachusetts, Maryland, Rhode Island, and Vermont are traditionally Democratic Party leaning states.
Time of India
21 minutes ago
- Time of India
Donald Trump's approval rating crashes in 15 key states that US President won in 2024
US President Donald Trump's approval ratings were down significantly in 15 states out of thirty-one that Republican won in 2024 Presidential elections. Trump's approval dropped in battleground states of Georgia, Arizona, Pennsylvania, Wisconsin, Nevada, North Carolina, and Michigan. Trump is also witnessing for a decease in popularity rating in Ohio, Utah, Texas, Iowa, Florida, Kansas, Indiana, and Missouri, as per reports. Trump's rating were abysmal in traditional Democratic strongholds such as D.C, New York, California, Washington, Massachusetts, Maryland, Rhode Island, and Vermont, Newsweek reported quoting The Economist. Also Read - Fox News poll sends Trump into meltdown mode as approval tanks and loyalty from his base wavers by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Buy Brass Idols - Handmade Brass Statues for Home & Gifting Luxeartisanship Buy Now Undo However, in a relief, Trump still enjoys positive approval ratings in South Karolina, Alabama, Alaska, Arkansas, and Kentucky. Newsweek's tracker shows Trump approval rating is down to 47 per cent. Morning Consult poll shows Trump's approval rating was down to 46 per cent. Trump's rating was down in survey conducted by J.L. Partners, and HarrisX/Harvard. Live Events President Trump's public approval rating held steady over the last month, but Americans are becoming less supportive of his approach to immigration as his administration cracks down, according to a Reuters/Ipsos poll that closed last week on Monday. The six-day poll showed 42 per cent of U.S. adults approved of the job the Republican is doing as president, unchanged from a prior Reuters/Ipsos poll conducted May 16-18. Trump's ratings have been largely stable since February and are only down modestly from the 47 per cent approval score he got immediately after returning to the White House in January. His support on immigration, however, softened to 44 per cent from 47 per cent in mid-May. On the economy, 52 per cent disapproved compared to 39 per cent who liked what Trump was doing. Americans also gave him generally poor marks on foreign policy, as per a report on Reuters/Ipsos poll. The survey, conducted online, gathered responses from 4,258 U.S. adults and had a margin of error of about 2 percentage points, Reuters/Ipsos poll reported. FAQs Q1. Which states have positive approval rating for Donald Trump? A1. Donald Trump still enjoys positive approval ratings in South Karolina, Alabama, Alaska, Arkansas, and Kentucky. Q2. Which are Democratic Party-leaning states? A2. D.C, New York, California, Washington, Massachusetts, Maryland, Rhode Island, and Vermont are traditionally Democratic Party leaning states.
Mint
34 minutes ago
- Mint
Commercial Real Estate Distress Is Spreading: Credit Weekly
(Bloomberg) -- The pain in US commercial real estate credit continues to bubble to the surface after a surge in borrowing costs and the rise of work from home left lenders vulnerable to losses. Delinquencies continue to increase, though the rate has moderated, researcher Green Street said this past week. Distress is also climbing, rising 23% to more than $116 billion at the end of March from a year earlier, data compiled by MSCI Real Capital Analytics show. That's the highest in more than a decade. Investors including Victor Khosla of Strategic Value Partners LLC have warned that debt maturities will lead to a 'tsunami' of problems for US offices in particular. There are signs that's spreading. The past-due and nonaccrual rate for commercial real estate portfolios reached the highest since 2014 earlier this year, the Federal Deposit Insurance Corp. wrote in a report last month, citing multifamily as an increasing source of pain. Past-due and nonaccrual loans are so far past due that banks have stopped booking interest owed because they doubt they'll ever receive it. Policy uncertainty, meanwhile, is also holding back activity in the underlying market as businesses delay decisions across districts, the Federal Reserve noted in its May Beige Book survey. For example, some of the reserve banks stated that demand for warehouses was affected by the potential impact of tariffs. Click here to listen to a podcast on the dangers facing private debt funds when the cycle turns The proposed Section 899 'revenge tax' in President Donald Trump's tax-and-spending bill could also 'trigger wider foreign investor pullbacks, impacting all US real estate lenders,' said Harsh Hemnani, a senior analyst at Green Street. German commercial property lender Deutsche Pfandbriefbank AG announced this past week that it's quitting the US market and will wind down, securitize or sell its €4.1 billion ($4.7 billion) portfolio there, warning it could make a loss this year due to the expected cost of the decision. Still, 'the timing of the exit likely indicates a belief that current market conditions offer a favorable window for divestment' amid improved liquidity and competition in the debt market, Hemnani said. That's in part because direct lenders have been raising more capital to invest in CRE, a trend that's causing some wariness. On Thursday, the Financial Stability Board cautioned that shadow lending to the industry globally 'may amplify and transmit shocks to banks.' Some traditional lenders continue to kick the can down the road in the US rather than take impairments. The wall of CRE debt continues to rise, in part because some credit providers have extended the duration of loans, the Mortgage Bankers Association said on Tuesday. Another headwind for traditional lenders is large unrealized losses on securities portfolios that they're holding to maturity or seeking to offload, with the FDIC saying last month that the losses stand at more than $410 billion. CRE is likely to be a similar source of pain. Loss rates on commercial and residential mortgage-backed securities suggest the unrealized losses on banks' mortgage books are likely to be as large or larger than in securities, academics including Lawrence White of New York University's Stern School of Business wrote last week. --With assistance from John Gittelsohn and Patrick Clark. More stories like this are available on
