Debt-for-nature swaps: Potential applications in Nepal

Debt-for-nature swap is a mechanism that facilitates creditor nations or lending institutions to cancel or forgive a certain amount of foreign debt owed by a developing country in return for allocation of resources in local currency or interest-bearing bonds for environmental conservation projects to be conducted in the debtor nation. Additionally, swaps assist in a small but measurable way in reducing the burden of debt and make a significant difference in the protection and promotion of sustainable usage of natural resources. The purpose of this paper is to associate the potential applicability of debt-for-nature swaps in Nepal. Nepal is a prime candidate because of the following factors: the relatively heavy indebted status and high cost of debt servicing that exceeds the country's repayment capacity; a deficit ridden economy; the ongoing environmental degradation primarily in the areas of deforestation and loss of biodiversity and natural habitat; the country's inability to otherwise provide adequate resources for environmental conservation, especially with regards to enforcement in protected areas; and the country's demonstrated commitment towards environmental conservation. A general assessment indicates that conducting swaps in Nepal is feasible and the potential for a high degree of success exists.