What are Green Debt Swaps?

What are Green Debt swaps?

As per OECD,

The rationale of debt swaps is that debt can be acquired at a discount. When creditors do not expect to recover the full nominal value of debts, they may be willing to accept less.

In exchange for (partial) cancellation of the debt, the debtor government is prepared to mobilise the equivalent of the reduced amount in local currency for agreed purposes on agreed terms.

For instance: Suppose a country A (debtor) has 100 Rs debt that it needs to repay to B (creditor). But, creditor knows that country A is suffering from a debt distress and will be unable to pay back the debt. So, it agrees to accept only 50 Rs.

This agreement is based on the condition that the debtor country shall mobilise the equivalent of the reduced amount for specific purposes.

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