Osinbajo: Nigeria to Reap Billions of Dollars from Creditors in Debt-for-Climate Swap Proposal

Deji Elumoye in Abuja

The Vice President, Prof. Yemi Osinbajo has disclosed that Nigeria would reap a huge debt relief from some creditors running into billions of United States dollars when the nation’s idea for a debt-for-climate (DFC) swap deal becomes widely accepted.

The proposal described as fresh thinking in Washington D.C by senior American government officials was already receiving positive reviews even as Osinbajo explained the potential for significant debt cancellation for African countries.

Experts said 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.
The Vice President’s media assistant, Laolu Akande, in a statement yesterday, stated that the vice president in his meetings with the top officials of the US government right after his speech at the Centre for Global Development (CGD) further pushed the DFC idea which he had previously proposed, publicly first, at the CGD.

According to Osinbajo, “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 of global consideration as it is a win-win proposal.
The vice president also pushed the idea of opening up the Carbon Market in Africa so that the Climate Change actions of African countries can be adequately verified by the international community through the assessments of the appropriate verification institutions.

He further noted, “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 reiterated that the DFC will help solve many of the debt burden challenges in Nigeria and other countries.

Osinbajo in his CGD speech explained that the, “debt for climate 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 programs.

“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.”

Justifying the rationale behind such a debt swap deal, the Vice President submitted that the commitment to it would “increase the fiscal space for climate-related investments and reduce the debt burden for participating developing countries.”

Responding to the DFC proposal, the Administrator of 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.
Similarly, the Vice President at the CGD speech also proposed a significant addition to conventional capital flows both from public and private sources to Africa through greater participation in the global carbon finance market.

His words: “currently, direct carbon pricing systems through carbon taxes have largely been concentrated in high and middle-income countries. However, carbon markets can play a significant role in catalyzing sustainable energy deployment by directing private capital into climate action, improving global energy security, providing diversified incentive structures, especially in developing countries, and providing an impetus for clean energy markets when the price economics looks less compelling – as is the case today.”

He encouraged developed countries to support “Africa to develop into a global supplier of carbon credits, ranging from bio-diversity to energy-based credits,” which would be a leap forward in aligning carbon pricing and related policy around achieving a just transition.

While in Washington D.C., Osinbajo met since last Thursday with his American counterpart, Kamala Harris at the White House; the US Secretary of the Treasury, Ms. 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 speaking at the Centre for Global Development.