From the peaks of Mount Kenya to the blue shores of the Indian Ocean, Kenya is home to a wide array of ecosystems including forests, marine and inland waters, arid lands, wetlands and rangelands. Kenya’s rich biodiversity is home to a variety of plant and wildlife which offer natural capital, crucial to the development of the society and Kenya’s economy.
According to Kenya’s Sixth National Report to the Convention on Biological Diversity (2020) about 42 percent of Kenya’s gross domestic product (GDP) and 70 percent of employment is derived from natural capital mainly in the sectors of agriculture, forestry, fisheries and tourism.
However, climate change is reducing natural capital and therefore risking its yields potential in Kenya. This is largely attributed to recurring natural disasters such as droughts and floods.
According to the World Bank’s Climate Risk Country Profile on Kenya (2021) it is estimated that over 70 percent of natural disaster in Kenya are attributable to extreme climatic events. These disasters consequently have far-reaching effects on agriculture, food security, water management, public health and tourism.
Nature, the environment and climate change all have an inextricable nexus. Yet, conserving nature, the environment and optimising resilience to climate change requires substantial investment.
Efforts to restore forested areas, protect mangroves, preserve lake basins, and safeguard coastal ecosystems from acidification and sea level rise all demand significant financial and technical commitment.
From a fiscal perspective, Kenya’s GDP stands at about $116.8 billion, with projected growth of 5.2 percent on average during 2024-26.
According to the National Treasury’s Medium Term Debt Management Strategy (2024), Kenya’s public debt was as at the date of its publication made up of 68.2 percent of GDP against the approved anchor of 55 percent of debt to GDP.
The Government of Kenya has made significant strides towards debt load reduction. For instance, its refinancing and buyback of the Eurobond in early 2024 has led to an improved economic outlook including through currency stabilisation and reduction of inflation.
Despite a successful refinancing and buyback of its Eurobond, Kenya is not entirely out of the woods with respect to alleviating its debt burden.
Kenya furthermore remains susceptible to liquidity risks, fluctuations in exports, exchange rates among others which could be consequential to its debt management.
In sum, Kenya’s debt profile may restrict fiscal space for investments in nature conservation, climate change mitigation projects and economic development in general.
Can Kenya preserve its natural capital, combat climate change and at the same time reduce debt pressures?
The Medium-Term Debt Management Strategy (2024) recognises that Kenya’s economy is susceptible to the ravaging impact of climate change. More so, the strategy recognises the need to undertake liability management through debt swaps and other innovative solutions.
Debt for nature swaps, along with other innovative financial instruments, aptly address the challenge of national debt as well as environmental degradation. They do so by allowing debtor countries to restructure their debt obligations to more favorable terms in exchange for nature conservation projects.
Introduced in the 1980s, debt for nature swaps have been executed in many countries including Bolivia, Costa Rica, Seychelles, Gabon and Belize. In Belize for instance, a country rich in natural capital and hosting a variety of marine life utilised a debt for nature swap to refinance its superbond, a $ 553 million Eurobond, whilst funding critical ocean conservation.
Ultimately, these instruments helped Belize reduce the country’s debt by 12 percent of its GDP whilst creating a commitment to protect 20 percent of Belize’s oceans, underpinning the significance of debt for nature swaps in sustainable financing and conservation.
There has been a global resurgence in interest to debt for nature swaps, attributed to more attention and urgency associated with environmental protection and climate change coupled with the fact that countries with high debt levels have less flexibility to incur expenditure in climate mitigation and adaptation.
Noting the sentiments of the Kenya’s Medium Term Debt Management Strategy (2024), its conservation needs and its debt profile, the time is ripe for consideration of a debt to nature swap.
