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Debt relief

Debt-for-development swaps

Philippine farmer cleans rice

Debt swaps have proven to be an important development policy instrument. The principle is as follows: a partner country undertakes to provide funding for development projects within its own borders; in exchange, Germany grants debt relief for at least the equivalent amount.

There are two possible ways of transferring the funds thus released:

  1. The debtor government undertakes to invest the funds directly in development projects.
  2. The debtor government pays the funds into a trust account managed by an independent body. Development projects are then financed using money from that account.

Germany's contribution

Germany has been conducting debt swaps bilaterally since 1993. This means that Germany waives some of the debts arising from Financial Cooperation provided the beneficiary developing country uses the funds thus released for development projects.

By the end of 2017, Germany had pledged debt swaps to 25 countries for a total of 1.7 billion euros.

Germany has thus far waived debts amounting to some 929 million euros after the partner countries concerned had fulfilled their commitments. The swap projects agreed upon to date focus on the areas of general poverty reduction, education, environmental protection and combating HIV/AIDS.


Debt2Health Initiative

Infant in a hospital in Indonesia

Another kind of debt swap, in this case tied to a specific sector, is possible under the Debt2Health Initiative launched by the Global Fund to Fight AIDS, Tuberculosis and Malaria.

The German government concluded its first agreement of this kind with the Global Fund and the Indonesian government in 2007. At the time, Indonesia paid 25 million euros into the Global Fund, which used the money to finance activities to combat HIV in Indonesia. In return, Germany agreed to cancel 50 million euros of Indonesian debt from Financial Cooperation. Further Debt2Health debt swaps have been agreed with Pakistan and Côte d'Ivoire.

At the fifth replenishment conference for the Global Fund in 2016, Germany made a commitment to provide up to 100 million euros for further debt swaps for the period up to 2019.

In total, there have been debt swaps for a total of more than 200 million euros under the Debt2Health Initiative so far. Other countries taking part in the Initiative are Australia and Spain.


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