Pakistan eyes world's first 'nature performance bond'

As the pandemic continues to threaten lives and livelihoods across the globe, developing countries are braced for the worst of its economic consequences. The health crisis has jolted economies and triggered sovereign debt crises, which means more developing economies are now in debt distress. The phrase 'debt pandemic' has emerged to illustrate how developing countries will struggle to repay foreign loans.

When it comes to countries crushed by sovereign debt, Pakistan is no exception. Its sovereign debt stands at 38 trillion Pakistani rupees (about US$240 billion) - a towering figure for a country where per capita annual income is US$1,542.50.

Pakistan's capacity to recover from the pandemic is further squeezed by debt servicing (repayment of the original loan and interest), which has eaten up more than a third of the country's total revenue during the past five years.

But Pakistan hopes to address this predicament with a solution that has its roots in the climate crisis: getting debt relief by delivering on steps to protect sensitive ecosystems and biodiversity.

It aims to do this through a debt-for-nature swap and the first-of-itskind nature performance bond (NPB). "We are working on a debt swap as well as the nature performance bond," Malik Amin Aslam, the adviser to Pakistan's prime minister on climate change, told The Third Pole.

A nature-based solution for debt? Designed by the Finance for Biodiversity Initiative (F4B), which strives to factor biodiversity into financial decision-making, Pakistan's nature performance bond would be tied to meeting naturebased targets.

Under the scheme, a creditor country may write off a portion of the newly issued debt, or reduce repayment interest rates, if biodiversity and nature restoration targets are achieved.

"We are targeting US$1 billion in naturebased bonds [under the NPB]," Aslam said, referring to the "overwhelming" response to Pakistan's firstever green bonds, which sought US$500 million for clean-energy projects in May.

The United Nations Development Programme (UNDP) is providing technical assistance to Pakistan in designing the NPB bond, on which Canada, Germany and the UK have said they will engage in a dialogue.

"We welcome and endorse the government of Pakistan's ongoing efforts to create the world's first NPB," a spokesperson for UNDP Pakistan said.

They added: "NBPs are one way to provide Pakistan with accelerated access to finance for development - [which is] also high on the agenda of the COP26, co-chaired by the UK and Italy."

Pakistan, the world's fifth-largest country with a population of 220 million, is responsible for less than 1 per cent of global carbon emissions but is among the top 10 most climate-vulnerable nations. This reality recently prompted Prime Minister Imran Khan to ask rich nations to give finance to countries vulnerable to climate change.

"We aim and hope to announce a deal [for the first NPB] at the World Bank-IMF annual meeting in October [this year]," Mark Halle, an ambassador for the Finance for Biodiversity Initiative, told The Third Pole from Switzerland.

According to Halle, Italy and China will soon be coming to the table, and Pakistan's bonds will be a reality at COP26.