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Some developing countries are working on ways to swap their debt for climate action

LEILA FADEL, HOST:

International climate change talks in Dubai are wrapping up. Many developing countries have been vocal about one of their key climate problems - their debt. As disasters get worse, countries are going deeper into debt trying to recover, so some are working on ways to swap that debt for action on climate. Lauren Sommer has more from NPR's climate desk.

LAUREN SOMMER, BYLINE: For island nations like Barbados, stronger hurricanes and rising sea levels are an existential threat. It's something Prime Minister Mia Mottley brings up time and again, like at the COP28 climate talks going on now.

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PRIME MINISTER MIA MOTTLEY: It is a death sentence for many. And the reality is that unless we change course, we are going to see far more lives lost and far more damage done.

SOMMER: Her country needs to prepare communities and build protections. And as much as she's talking to richer countries that burn most of the fossil fuels, she has another audience.

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MOTTLEY: We need new players at the table in terms of the insurance companies and in terms of the credit rating agencies and the bank regulators.

SOMMER: For developing countries, the financial system is one of the biggest hurdles to dealing with climate change.

AVINASH PERSAUD: There is this unholy nexus between debt and climate.

SOMMER: Avinash Persaud is special climate envoy for Barbados. He says countries like his are getting caught in a vicious cycle. When a hurricane or disaster hits, they need to borrow money to rebuild. Then it happens again.

PERSAUD: About half of the increase of our debt - half - is caused by addressing some kind of climate disaster.

SOMMER: And the money they borrow is more expensive. A richer country might get a loan with a 4% interest rate.

PERSAUD: We borrow at 9%. Zambia borrows at 20%, South Africa at 14%, Brazil at 12%.

SOMMER: So Barbados is leading the charge globally for financial reform. And they are experimenting with some solutions, like refinancing their debt with some partners.

MELISSA GARVEY: Imagine if you were able to refinance your mortgage and you had somebody co-signing with you that had much better credit ratings.

SOMMER: Melissa Garvey is with the nonprofit The Nature Conservancy. Her group worked out a deal with Barbados and an international bank. They co-signed the loan, reducing the interest rate Barbados is paying. That freed up around $50 million, which is going towards marine conservation, like protecting coral reefs.

GARVEY: It'd be like refinancing your mortgage and using the cost savings to put solar panels on your roof.

SOMMER: It's known as a debt-for-nature swap, which has also been used in Belize and the Seychelles.

GARVEY: It's an imperative that the world needs to be undertaking. There's just not enough financing for biodiversity and climate.

SOMMER: Persaud says it frees up money for conservation they wouldn't have had otherwise, but only through their interest payments.

PERSAUD: The size of our debt hasn't changed, and so it's not really a long-run solution to debt problems.

SOMMER: That's something Barbados is still pushing for. Developing countries need hundreds of billions of dollars per year to deal with climate change. But the negotiations in Dubai did produce one breakthrough. The World Bank announced that it will allow countries hit by disasters to pause their debt payments, freeing up crucial funds to rebuild and recover.

Lauren Sommer, NPR News. Transcript provided by NPR, Copyright NPR.

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