Pre-Feasibility Analysis, Project Pipelines and Institutional Support for Debt-for-Environment Swap (DFES) in the Kyrgyz Republic Preliminary Results

Size: px

Start display at page:

Download "Pre-Feasibility Analysis, Project Pipelines and Institutional Support for Debt-for-Environment Swap (DFES) in the Kyrgyz Republic Preliminary Results"

Elisabeth Hunt
6 years ago
Views:

Joint Meeting of the EU Water Initiative s EECCA Working Group and the Environmental Finance and Water Networks 29 March 1 April 2005, Chisinau, Moldova Pre-Feasibility Analysis,

1 Joint Meeting of the EU Water Initiative s EECCA Working Group and the Environmental Finance and Water Networks 29 March 1 April 2005, Chisinau, Moldova Pre-Feasibility Analysis, Project Pipelines and Institutional Support for Debt-for-Environment Swap (DFES) in the Kyrgyz Republic Preliminary Results Nelly Petkova Environmental Finance Programme OECD/ Secretariat

2 Structure of the Presentation Definition of the DFES Public External Debt Stock and Share of GDP Debt Service Ratios of Selected EECCA What Has Been Done Already? Project Objectives Composition of Debt by Creditors Expected Revenue Flows from Potential DFES Main Preliminary Conclusions of Debt Analysis Main Priorities and Proposed Pipelines Concluding Remarks 2

3 Definition What is a Debt-for-Environment Swap DFES is a transaction that cancels a country s external debt for its commitment to spend an equivalent amount, or a portion of the reduced liabilities in the country, in local currency on agreed conditions, to finance brown or green environmental projects These transactions can be bilateral (mainly between governments to swap official debt) or can be facilitated by a third party (environmental NGO or broker), when they involve mainly private debt. 3

4 Public External Debt Stock and Share of GDP % of GDP bln USD Public external debt (% of GDP) Public external debt (bln USD) 4

5 Debt Service Indicators of Selected EECCA External Debt % Exports % GDP Armenia Azerbaijan Georgia Kyrgyz Republic Moldova Tajikistan Uzbekistan

6 What Has Been Done Already? 2001: Adoption of Debt Reduction Strategy March 2002: Agreement with the Paris Club on Flow Rescheduling Setting up of an Inter-Ministerial Committee to discuss and develop modalities for utilising the DFES opportunity Contacting OECD and UNDP for support Attempts to advance the DFES idea through a UN initiative on Poor Mountainous Countries Launching OECD project in mid 2004 March 2005: Agreement with the Paris Club on Stock Debt Restructuring a prerequisite to achieve debt sustainability during this decade Agreement also included an explicit clause on debt swaps to be undertaken on a voluntary and bilateral basis with individual creditors Negotiations with individual creditors to be concluded by the end of

7 Project Objectives To assist the Kyrgyz government in analysing opportunities for swapping external debt for domestic financing of environmental projects debt profile, debt sustainability and repayment schedule priority creditors for bilateral DFES the fiscal capacity to service DFES scheme compatibility with planned debt treatment operations unconditional relief, debt-for-aid, debt-for-equity, debt-for-nature institutional, legal and regulatory issues To set priorities for negotiations with potential bilateral creditors through a credible expenditure programme identification of 3 most promising project pipelines Focus on external public and publicly-guaranteed longterm debt owned to official bilateral creditors As of end of 2004 total external debt of the Kyrgyz Republic is about 2 bln USD of which about 92% is public and publiclyguaranteed external debt 7

8 Composition of Public External Debt by Type of Creditor 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Conditional Multilateral nonconcessional Multilateral concessional Bilateral nonconcessional Bilateral concessional 8

9 Expected Revenue of a 20% Debt Swap (Krygyz Republic , in million USD) RUSSIA TURKEY GERMANY BGB GERMANY KFW FRANCE Million 9

10 Main Preliminary Conclusions on Debt Analysis Estimated annual revenue flows are limited The biggest creditor is Russia, followed by Turkey, probably least interested France and Germany are the main candidates for debt swaps If the 4 countries participate, annual revenue flow will be $ 4 mln If France and Germany alone, annual revenue flow will be $ 400,000 A chance to get additional revenue from bilateral donors, most likely to happen after a credible mechanism is established And yet, a DFES is feasible and financially affordable to the Kyrgyz Republic The recent March 2005 Paris Club agreement can change the numbers but not the overall picture 10

11 Main Priorities and Proposed Pipelines for the Expenditure Programme Water Management Improvement of wastewater collection and treatment in the coastal settlements of the Issyk-Kul Lake Biodiversity Protection Protection against land degradation Prevention of irreversible biodiversity loss Climate Change Renewable Energy Sources Biogas production from animal waste Rehabilitation of existing and construction of new mini hydro-power plants 11

12 Concluding Remarks Part I Unconditional relief is always better for the debtor country than a conditional swap debt swaps must not limit opportunities for an unconditional relief DFES should be proposed immediately after unconditional relief options are exhausted Debt swaps including DFES are best dealt with within the framework of the Paris Club If the latter is in the country s interest, the country should go to discussions with individual creditors prepared in advance to negotiations Although potential revenue flows could be small compared to current levels of expenditure, DFES could still help raise additional resources for environmental projects 12

13 Concluding Remarks Part II In designing DFES, the interests of creditors and the whole debtor country s Government should be taken in account Concluding DFES could only be achieved through concerted efforts of the whole Government under the leadership of the Ministry of Finance, with the crucial participation of the Ministry of Environment A credible and realistic expenditure programme demonstrating a solid pipeline of attractive projects is the most convincing argument in negotiations with individual creditors Institutional set-up to manage DFES resources should correspond to existing revenue levels and needs (types of projects) 13

Lessons Learnt from Experience with Debt-for-Environment Swaps in Economies in Transition

Environmental Finance Lessons Learnt from Experience with Debt-for-Environment Swaps in Economies in Transition ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION