Deforestation
High external debt levels worldwide have forced ecologically-rich nations to exploit their natural resources to generate revenue. Debt-for-nature swaps offer a promising solution to this problem, but remain challenging to implement in practice.
The threat to natural capital
In this episode of VoxDevTalks, Tim Phillips speaks with Pushpam Kumar from the United Nations Environment Programme (UNEP) about the critical relationship between rising external debt and natural capital. The discussion focuses on three vital river basins—the Amazon, Congo, and Mekong—and explores how economic pressures are driving unsustainable exploitation of natural resources.
"Ballooning external debt in these three river basins are compelling the decision makers and the national leaders to destroy or harvest natural capital unsustainably. This is adversely impacting the same people from which we are borrowing the money at external debt."
Understanding the importance of river basins
Kumar outlines the significance of the Amazon, Congo, and Mekong river basins, which serve as ecological powerhouses, sustaining biodiversity, regulating carbon storage, and providing essential resources to millions of people.
"They provide habitat to the biodiversity, they store carbon. For example, Congo River Basin, they store carbon, which is equivalent to one-third of the emissions by… France. They provide the source and basis of livelihood to the people through water, nutrient cycling, timber, fees, recreation, trade. The kind of services they provide are precious, not only to the countries who are in their vicinity, but also to the rest of the world."
However, these vital ecosystems are under increasing pressure from urbanisation, climate change, and deforestation, exacerbated by economic constraints faced by the countries they span.
Rethinking debt analysis: Moving beyond GDP
A central theme of the discussion is the inadequacy of traditional debt measurement frameworks, which primarily rely on the debt-to-GDP ratio. Kumar advocates for a broader approach that incorporates natural capital into economic assessments.
"GDP has its problem… a large number of transactions are not captured by GDP. It does many good things, but it has its limitations, and economic science in last 50 years has been very vocal about it. GDP does not do a lot of things which are required in the economy, and one of them is measuring sustainability."
He suggests that policymakers should shift towards a debt-to-natural capital ratio, which would provide a clearer picture of a country’s long-term economic sustainability.
"Debt GDP is fine, but the real sustainability will come from debt natural capital or debt inclusive wealth ratio."
The hidden cost of external debt
One of the most striking arguments made in the episode is that high external debt levels force countries to exploit their natural resources in order to generate revenue.
"For example, some country can choose to overfish and sell it to the market to earn the revenue and pay the debt, or, at least, interest on the debt. Similarly, one can cut the forest, sell the log wood, and earn the profit to pay the interest rate or the service charge on the external debt."
This pattern of resource exploitation leads to the depletion of forests, fish stocks, and biodiversity, ultimately harming the very people the debt was intended to support.
Debt-for-nature swaps: A policy solution
To address this challenge, Kumar advocates for debt-for-nature swaps—a financial mechanism that allows countries to reduce their debt obligations in exchange for commitments to conservation efforts.
"Debt for nature swap is, basically, if you spend on biodiversity improvement or climate change mitigation adaptation activities, then some of the loan can be waived or reduced."
This approach requires collaboration between debtor nations, creditor nations, and third-party conservation organisations, ensuring that financial relief translates into real environmental benefits.
The challenges of implementing sustainable financial policies
Despite the promise of debt-for-nature swaps, Kumar acknowledges significant challenges, including the difficulty of accurately valuing natural capital and the need for strong institutional trust.
"You have to identify who are the beneficiaries and who are the providers in clear cut terms."
Additionally, he highlights that while global interest in sustainability has increased, political and institutional barriers continue to slow progress.
Conclusion: The urgency of change
As Kumar emphasises, the stakes could not be higher. If current trends continue, we face severe environmental degradation and economic instability.
"In our lifetime, we are seeing the problem which was never experienced 50 years back. You see climate change, you see the loss of biodiversity. One million species are under risk of extinction every year, 7% of the GDP is lost due to air pollution [of] PM2.5 alone, and, by 2030, we will have more plastic in the ocean than fish."
The episode concludes with a call for policymakers to embrace new economic models that integrate sustainability into debt management strategies. As Kumar puts it:
"It takes time. It takes time. Sometimes it could be frustrating, but we have to play our role."
By recognising the link between debt and natural capital, decision-makers can create financial structures that promote both economic stability and environmental sustainability.