| By Natasha White Colombia has been rejecting offers to do a debt-for-nature swap over fears such a deal could impact its sovereign credit rating, according to the country’s former environment minister. The transactions, which have gained traction in a number of developing countries, are designed to free up funds to finance the transition to cleaner energy or to protect nature. In the arrangements, countries refinance a portion of their debt on better terms and allocate savings to environmental projects. Colombia’s concern is that a debt-for-nature swap could “send the wrong message to the markets and make our financial situation worse,” said Susana Muhamad, who resigned as Colombia’s environment minister last month. “Because we are a middle-income economy, the financial markets look at us differently than if we were a country that is in debt struggles,” she said. At the same time, “we need to increase the fiscal capacity for the climate transition, but without sending a signal to the markets that we are not able to pay our debt.” A spokesperson for Colombia’s environment ministry said Muhamad’s comments reflect the government’s current stance. Developing country governments are looking for new ways to finance the transition away from fossil fuels and to conserve their diverse plant and animal species. Colombia was forced back to the drawing board on a $40 billion green investment plan following President Donald Trump’s return to the White House. Bogota’s anxiety around debt-for-nature deals highlights a potential dilemma that other middle-income countries may face when considering financing options for their green transition. Colombia felt burnt by credit ratings agencies who got “super nervous” around its decision to halt new oil and gas development in 2023, Muhamad told Bloomberg last year. That risked adding to the country’s already high cost of capital, she said. In January 2024, S&P Global Ratings switched the country’s outlook to negative, citing the country’s green transition plan among the factors that drove that decision. Debt-for-nature swaps have proved popular with junk-rated countries and are attracting a growing number of global banks. The first such swap was arranged by Credit Suisse for Belize in 2021. Since then, Barbados, Ecuador, Gabon, El Salvador and Bahamas have completed similar swaps, with Bank of America Corp., JPMorgan Chase & Co. and Standard Chartered Plc among banks moving into the market. The deals typically involve credit enhancement from a multilateral development bank — or development finance institution — to help lower the cost of borrowing and give a country access to an investor base that would normally be out of reach. Credit ratings have given a reason to be cautious about considering a debt swap. S&P Global Ratings upgraded Belize after judging its swap moved it out of selective default. Yet Moody’s considered the transaction an event of default. Moody’s also treated both of Ecuador’s deals as a distressed exchange, contrary to S&P Global Ratings and Fitch. Sebastian Espinosa, managing director at White Oak Advisory, which guided Barbados on its debt swaps, said concerns about ratings agency treatment now are a “hangover” from early deals in Belize and Ecuador. “We’re trying to position these as deals that are done from a position of strength, and as part of prudent liability management,” Espinosa said. It’s a “mistake” to link debt swaps with debt distress, he said. Still, for Colombia the focus now is on a more comprehensive debt solution. The country, alongside Kenya, France and Germany, has sponsored a review of how an issuer can leverage its liabilities for environmental protection and what changes are needed to the international financial architecture to help it do so. For more from the credit rating agencies’ perspective, get the full story online. Also, read more about the hurdles Colombia is facing as its tries to wean off oil and gas. | 
