Browsing by Author "Wimalarathne, Menaka"

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    Debt for climate and nature swaps in Sri Lanka
    (Institute of Policy Studies of Sri Lanka, 2025-07) Fernando, Lakmini; Madurawala, Sunimalee; Wimalarathne, Menaka
    In addressing the triple challenges of high indebtedness, climate change and loss of nature, debt-for-climate and nature (DfCN) swaps are recognised as an effective fiscal instrument for developing economies. These are agreements between the debtor and creditor where debt repayments are restructured to reduce the debt burden, with the funds allocated to climate-positive investments that support environmental commitments. Debt swaps, therefore, can be used to reduce foreign debt obligations and unlock fiscal space for environment-related investments. With the conclusion of debt restructuring, Sri Lanka is in a more favourable position to implement a DfCN swap. An early start to the preparatory work would enhance the government’s readiness for successful implementation. Externally, implementing DfCN swaps requires a transformed global financial architecture where developing countries are better supported to maintain sustainable debt levels and higher climate investments. Multilateral financial institutions have a bigger role to play in this regard. Internally, long-term planning, stringent commitments across all sectors and capacity building are critical in implementing DfCN swaps. DfCN swaps have the potential to re-establish financial and governance credibility and accomplish the financing needs of debtor countries. However, whether the benefits of DfCN swaps can be fully capitalised depends significantly on the government’s willingness to implement broader policy reforms and its ability to negotiate more favourable debt agreements.