A groundbreaking $600 million debt-for-climate swap deal has drawn both praise and caution from a leading economist.
The arrangement, which will fund a $240 million upgrade to facilities including the South Coast Sewage Treatment Plant, was hailed by Professor Justin Robinson as a “forward-thinking approach”. But he also cautioned about potential risks.
The Principal of the University of the West Indies Five Islands Campus praised the initiative as a pioneering step in debt management and climate action that also positions Barbados as a leader in innovative financing within the region, if not the world.
The government is seeking approval to secure a sustainability-linked syndicated loan facility amounting to approximately $600 million.
The loan, facilitated under the Special Loans Act, aims to refinance high-cost public debt, reducing overall interest expenses and improving debt sustainability, the UWI principal explained to Barbados TODAY. The financing is to be sourced by three Canadian banks here – CIBC Caribbean Bank (Barbados) Limited, Scotiabank (Barbados) Limited, and RBC Royal Bank (Barbados) Limited. CIBC is to act as the facility arranger.
Key features of the loan include an amount of up to $600 million, a fixed interest rate of 3.25 per cent per annum, and terms incentivising the achievement of sustainability performance targets (SPTs), with a minor penalty rate of 0.2 per cent per annum for non-achievement.
The 20-year loan matures in October 2044, with a five-year, three-month grace period. Repayments are scheduled to commence in January 2030, with quarterly instalments of approximately $9.9 million.
Professor Robinson said Barbados stands to benefit from significantly reduced borrowing costs, easing the government’s financial burden over time and creating a foundation for greater economic stability.
He highlighted sustainability goals as a key advantage, noting that the loan encourages adherence to global environmental, social, and governance (ESG) standards, reflecting Barbados’ commitment to sustainability.
Risk mitigation is another positive feature, with provisions designed to ensure financial flexibility during crises such as natural disasters and pandemics.
But the finance expert outlined potential risks.
“Upfront costs include arrangement, legal, and facility agent fees totalling US$255 000 [$510 000], along with ongoing agency fees. Despite these expenses, the refinancing strategy is expected to yield net savings over the loan term,” Professor Robinson said.
He cautioned that failing to meet the performance targets could slightly increase loan costs, although the impact is minor at 0.2 per cent annually. Additionally, the loan’s 20-year tenure, while easing immediate financial pressure, extends obligations into the future.
Professor Robinson acknowledged the upfront and ongoing fees as a concern, noting they reduce the funds available for immediate use.
As a strategic initiative, he contended that the facility reflects the government’s commitment to prudent financial management and sustainable development.
The economist recommended the government prioritise transparency by clearly communicating sustainability goals and progress to the public, utilise the Natural Disaster and Pandemic Clause to maintain financial stability during crises and conduct regular reviews of debt performance and its impact on public finances.
