By Andrea Shalal

ROME, (Reuters) – The IMF is focusing its effort for debt-for-climate Swaps on countries with low debt. According to reliable sources, it has dropped plans to make a joint proposal to the World Bank and the IMF prior to next week’s UN climate conference.

Kristalina Georgieva, chief of International Monetary Fund, (IMF), stated that green debt swaps can spur climate action in developing countries. She also pledged to collaborate with the World Bank in order to advance this option in time to the United Nations Climate Change Conference 26 to be held in Glasgow.

She received strong support from civil societies groups, who advocated for solutions that address both climate change and the rising debt burdens of low-income nations. These countries saw their debt rise to an unprecedented $860 billion in 2020.

The group has raised concerns regarding the effectiveness and potential consequences of these swaps. This is due to limited previous swaps and creditors’ interest. Also, slow progress was made in a more comprehensive and straightforward restructuring of debt that the Group of 20 launched last year.

Georgieva held a meeting with representatives from the United Nations and World Bank in July on the issue of swaps. However, there was little progress on particular proposals according to multiple sources who are familiar with the situation.

A spokesperson for the IMF said that they were continuing to look at ideas and would reveal concrete plans in the next week.

According to the spokesperson, “Debt climate swaps may be a valuable complement to existing instruments for financing climate change,” he said. We support creating an environment which allows swaps to thrive and grow in scale.

Sources familiar with the discussion said that World Bank representatives were skeptical and prefer to concentrate on climate-related policy changes rather than increasing spending by already indebted nations.

Sources said that IMF officials raised internal questions about the effectiveness of these targeted instruments. They also suggested that some countries might prefer grants because they are simpler.

Kevin Gallagher from Boston University’s Global Development Policy Center said that the inability to make progress regarding Georgieva’s plans is disappointing.

Gallagher’s think-tank and two other groups in June called for G20 countries to create a global facility that can guarantee new bonds. Private creditors could swap old debts with a haircut to get new ones. This plan is modeled on so-called Brady bonds, which were issued in late 1980s by Latin American nations.

Gallagher said that “The IMF should increase its urgency”. Gallagher spoke to Reuters about the confluence between problems faced by countries with high levels of debt and are at increased risk from climate change-related weather phenomena.

John Morton was the U.S. Treasury Department’s top climate adviser. Although it is smart to maximise climate benefits in debt-forgiveness programmes, it was not a priority for the United States which doesn’t hold much sovereign debt of the developing world.

Morton said in an interview to Reuters that to have these debt-for nature swaps be meaningful they must take place on a large scale.

Sources familiar with discussions stated that debt-for nature swaps totaled only $1 billion over the 1980s, and were difficult to carry out.

The source noted that this type of thing “does not work on an overall basis” and cited the slow progress Chad made, Zambia, and Ethiopia under the G20 Common Framework for Debt Treatments.