Sovereign debt-for-development swaps occur when part of a country's debt burden is reduced in exchange for government commitment to redirect funding towards development projects in areas such as education, health, poverty and nature conservation. 

Fiscal space is created as expenditure shifts from servicing debt to specific development goals. In the context of high debt servicing costs, growing debt levels and lagging SDG achievements, such swaps are often seen as win-win options.

Following successful debt-for-nature swaps in countries like Belize, Barbados, and more recently, Ecuador, and Egypt, which channelled large amounts of resources towards underfunded developmental projects, the concept of debt-for-development swaps as a mechanism for mobilising development finance has gained significant attention.

But with the complicated multi-party structures and conditions associated with larger debt swaps, come possible risks, including that a large debt swap may be seen as a distressed exchange or sign of debt distress. Notably, if a country has any risk of default, a debt swap may render debt restructuring more complex.

This study addresses the choice and considerations surrounding the use of sovereign debt swaps in development finance. 

It also considers how countries can scale up the number and size of debt swaps and how an information-sharing, South-South platform could aid decision-making among developing countries on the appropriate use of debt swaps.

Report by the United Nations Conference on Trade & Development