Portugal agrees to swap Cape Verde's debt for environmental investment

By Sergio Goncalves

LISBON (Reuters) - Portugal has signed an agreement to swap Cape Verde's debt for investments in an environmental and climate fund that is being established by the archipelago nation off West Africa's coast, Portuguese Prime Minister Antonio Costa said on Monday.

Such "debt-for-nature" swap deals are emerging in other countries and are part of attempts to resolve a dilemma faced by world leaders on how and who will foot the bill for actions taken to reduce the impact of climate change.

The former Portuguese colony, which is already suffering from rising sea levels and significant biodiversity loss due to increasing ocean acidity, owes around 140 million euros ($152 million) to the Portuguese state and over 400 million to its banks and other entities.

Costa said that initially, 12 million euros of debt repayments to the state scheduled until 2025 will be put in the fund, and ultimately "the entire amount of debt repayments" will end up there, allowing Cape Verde to invest in energy transition and the fight against climate change.

"This is a new seed that we sow in our future cooperation. Climate change is a challenge that takes place on a global scale and no country will be (environmentally) sustainable if all countries are not sustainable," Costa said during a state visit to Cape Verde in remarks broadcast by RTP television.

He did not specify if debt to Portuguese companies was part of the deal, but expressed hope that companies "will also be involved in the various areas from energy efficiency, to the production of renewable energy" or storage of green hydrogen.

Cape Verde Prime Minister Ulisses Correia e Silva said his country needed to urgently enable mechanisms and financing instruments to support such solutions and deal with natural emergencies.

Debt-for-nature deals can help as they can produce the so-called green and blue bonds to finance conservation efforts on and land and at sea, which appeal to a rapidly growing number of investors seeking to meet net-zero carbon emissions and other environmental goals.

($1 = 0.9206 euros)

(Reporting by Sergio Goncalves; editing by Andrei Khalip and Grant McCool)