Kenya is considering debt-for-nature or climate swaps to unlock funds for building water dams amid a cash crunch that has risks derailing spending on key development projects.
Debt-for-nature or climate swaps are financial deals that typically allow a country to restructure its debt at a lower interest rate or longer maturity, with the proceeds being allocated to conservation or green projects.
This innovative financing model has gained traction among developing countries and has been successfully deployed in Seychelles, Belize, and Barbados, relieving the countries of some of the pressure of paying back international loans through nature conservation agreements.
“Opportunities for debt for climate or nature swaps will be pursued under the proposed government water dams’ investment/funding programme with eligible creditors,” Kenya’s Treasury disclosed in the latest debt plan.
Water, irrigation projects
This comes at a time the government is seeking to roll out water and irrigation projects in the next five years working together with the private sector.
The Kenya National Treasury says it has, in collaboration with the Ministry of Water, already identified major dams which will be launched for procurement through the public-private partnership (PPP) model.
President William Ruto had last year said Kenya cannot afford the billions of shillings needed for water provision in the short term and that the PPP model would offer a solution for this.
Universal water access
The World Bank estimates that Kenya needs some $14 billion (KSh1.7 trillion) in investment in the water supply to achieve universal water access by 2030.
“In order to achieve our target of raising access to water from the current 60 per cent to 80 per cent, KSh500 billion ($4 billion) is required. The government can provide this gradually, but the private sector can mobilise it all at once,” Dr Ruto told Parliament.
“We will thus adopt a PPP framework by entering into water purchase agreements with investors. This way, we will achieve water for all in less than a decade,” he said.
Mop up cash
The debt-for-climate swaps are aimed at further helping the government mop up cash for its water programme.
The International Monetary Fund (IMF), in an analysis of the debt-for-nature swaps, notes that countries that are most vulnerable to climate change and the associated loss of natural biodiversity are often those least able to afford the investment to strengthen resilience because their budgets are burdened by debt.
“Debt-for-climate swaps and debt-for-nature swaps seek to free up fiscal resources so that governments can improve resilience without triggering a fiscal crisis or sacrificing spending on other development priorities,” said the IMF.