Cabo Verde: Government wants to convert debt into climate funds

Cabo Verde will propose to international creditors to convert part of the external public debt into climate funds to finance economic recovery in the post-pandemic and mitigation of the consequences of climate change.

“We are proposing, and all the small island countries as well, converting of part of the external debt into climate funds be done. It means that developed countries, which are our creditors, can convert part of the external debt into financing lines, into funds for investment in climate change,” announced Cabo Verde’s Deputy Prime Minister, Olavo Correia.

On the sidelines of the 9th Conference on Climate Change in Africa, which has been taking place since Wednesday in the city of Santa Maria, on Sal Island, the Cabo Verdean Prime Minister explained that the conversion of foreign public debt would be used in the proposal on the table, to finance renewable energy projects, access to water and energy, the circular economy and “all matters” related to tackling climate change.

“We think that at the same time, we can also create new funding instruments. The green funds, the blue funds, the conversion of debt into investment funds, but also the contribution of international partners to create a bigger financing cake to allow our countries to be able to invest in the education, health, infrastructure sectors, but also in areas that have to do with promoting climate change,” explained the Finance Minister.

Faced with the economic crisis caused by the Covid-19 pandemic, with a drop in tax revenues and the need to increase social and corporate support, the Cabo Verdean government has been resorting to public debt since April 2020 to finance the running of the state, with external debt soaring to an overall value of almost €1.7 billion.

“So we think we have a way to go here, and we want to appeal to the international community to access these new funding challenges, creating conditions for access to be easier for our countries and in better conditions so that we have the conditions to continue investing in the fundamental sectors for our future,” Olavo Correia said.

Cabo Verde’s public debt stock rose in July to over 269,258 million escudos (€2.427 billion), equivalent to 153.6% of the Gross Domestic Product (GDP) estimated for 2021, due to the pandemic, according to figures from the summary report on budget execution.

By July, public debt contracted domestically was worth the equivalent of 47.3% of Cabo Verde’s GDP (42.7% in July 2020), rising to over 82,986 million escudos (€748 million), while external debt was worth 106.3% (107.7% in 2020), equivalent to 186.672 billion (€1.683 billion).

The relief, restructuring or forgiveness of Cabo Verde’s external debt is a short-term goal assumed by the government, which is in talks with international creditors, namely Portugal, to free up financial resources for economic recovery after the pandemic.

Prime Minister Ulisses Correia e Silva on Wednesday called for “global answers” to the effects of climate change and a “single African position” at the 26th UN Conference on Climate Change (COP26).

Speaking at the opening of the 9th Conference on Climate Change in Africa, the Cabo Verdean prime minister started by pointing out several effects of climate change, especially in African areas south of the Sahel, and stressed that the Covid-19 pandemic has demonstrated the serious global impacts of climate change in a more transparent way, understanding that they can only be mitigated and reduced with the prevention, regulation and international response mechanisms.

“This approach does not remove responsibility from each country individually, but rather amplifies the responsibilities, to place them at the level of the planet and commitments to future generations,” he stressed.

Silva said the African continent has an “indispensable role” in global efforts to reduce greenhouse gas emissions and limit global warming to 1.5 degrees Celsius.

Regarding Cabo Verde, he said that climate change is a “real threat” to the archipelago and reaffirmed the goal of reaching 30% of electricity production from renewable sources by 2025, exceeding 50% in 2030 and reaching 100% in 2040.

The 9th Conference on Climate Change in Africa brings together over 1,000 participants in a hybrid format, virtual and face-to-face, and is jointly organised by the government of Cabo Verde and the United Nations Economic Commission for Africa (UNECA).