How sovereign debt can become sustainability investment gold

In 2021, an innovative “debt-for-nature” swap by Belize showed how sovereign debt relief can be harnessed for sustainability. Aiming to convert debt into environmental investment opportunities, it executed a $553 million debt repurchase using a $364 million Blue Loan, at a 45% discount. The transaction allowed the country to redirect over $180 million towards long-term ocean protection, including a pledge to conserve 30% of marine territory by 2026.

Two-thirds of low-income nations are at risk of debt trouble, of which 22 are African. Africa’s sovereign debt doubled to $1 trillion between 2020 and 2024, while average public debt in sub-Saharan Africa doubled to 60% of GDP between 2013 and 2024. Forty-six developing countries, mostly African, spend more on interest payments than on health or education. All this prevents the progress of development and makes it critical to relook at debt restructuring to mobilize liquidity for development.

The underlying motive of Debt-for-Development Platforms (DDPs) is that debt restructuring converts sovereign debt into blended investment pools that may fund scalable development interventions. This occurs as external debt is repurchased or reduced using concessional loans (ones made on terms more favourable than general market conditions) or guarantees. This frees up fiscal resources that are redirected into a trust-managed investment fund, with the proceeds used towards national or regional sustainable development goals, often with performance-linked structures.

They may operate through the following steps/layers, whereby debt is recycled into productive capital and capital providers are compensated with returns:

Under a regional DDP, Egypt is collaborating with development agencies to turn $500 million of sovereign commitments into a Green Infrastructure Fund. Private enterprises, the sovereign wealth fund, and multilateral development finance institutions are jointly supporting a portfolio of strategic investments for national development and regional integration.

Each project is digitally tokenized, allowing investors to trace capital flows and outcomes in real time. By 2028, Egypt’s borrowing costs are expected to decline because markets view its liabilities as structured, productive assets. The DDP model could convert fiscal vulnerabilities into resilience and prosperity, and it may also serve as a blueprint for other countries in Africa.

With this objective in mind, the continent should consider establishing an African debt conversion platform, a collaborative regional-level DDP initiative that may involve, or is initiated by, institutions like the African Development Bank, African Union, UN agencies, the Green Climate Fund, or similar regional and international partners that may want to benefit from investing in impact-linked development projects.

The platform’s modus operandi may involve streamlining credit analysis templates, identifying risk-pooling and risk-mitigation mechanisms, and scaling cross-border investment transactions. These would enable a scalable platform, rather than a basket of fragmented debt-for-development swaps.

The initiating institution could act as the host or trustee, and the DDP would ideally be governed by a board that includes cross-country representation from across Africa, including ministries, development banks and private investors to ensure policy ownership and market participation. A pilot phase with countries committed to Africa’s Agenda 2063, led by Egypt, would allow the platform to test its governance, data systems and financing structures before scaling continent-wide.

To reinforce transparency and credibility, an independent monitoring unit – a Debt-to-Investment Observer (DIO), for example – could track every converted dollar, map outcomes with national development goals and/or the Sustainable Development Goals (SDGs), publish data and enable stakeholder reporting.

This might give Africa the unique position to prototype the world’s first ever regional integrated debt conversion ecosystem. The intention is to scale up to a regional level initiative by leveraging the learnings from what countries like Belize (Debt-for-Nature Swap) or Egypt (Green Infrastructure Fund) have attempted at national level.

Interventions related to climate adaptation, land use and energy transition, etc, which impact a larger region across borders, may particularly benefit. And it may unlock investment avenues for impact-driven investors, and commercial and development capital, who seek comfort with the credibility of sovereign support with minimal political risk before deploying capital for development plus monetary gains.

This proposed DDP model connects with emerging financial innovations, like tokenized sovereign bonds (digitally represented government debt instruments) to sustainability-linked sukuks (Islamic finance debt instruments tied to environmental or social targets). It is also meant to supplement traditional debt relief efforts and is in line with the IMF’s Resilience and Sustainability Facility, which promotes fiscal reforms linked to climate objectives.

The DDP narrative does not characterize debt as bailouts, relief or forgiveness; rather, it connects it with smart investments and transforming risks into investment opportunities for development and resilience.

Egypt’s experience with the Green Infrastructure Fund makes it an ideal candidate to lead the regional pilot, by bringing in collaborative partners to expand its model into a continental African Debt Conversion Platform. This would provide the larger continent with a chance to chart its next trajectory in development finance towards resilience, climate adaptation and sustainable growth.