DEBT FOR L&D SWAP: Bangladesh’s triple-win solution to rehabilitate climate refugees

Every day, 2,000 people from the low-lying coastal region (710 km of land) migrate to Dhaka, which consistently ranks as one of the least livable cities in the world, due to climate-induced adversities witnessed back home.

Since 2008, 21.2 million disaster-induced internally displaced people living in Bangladesh have suffered generational traumas from repeated displacement and destitution. The losses and damage throughout their battle with natural disasters go far beyond mere economic calculations.

“After being repeatedly displaced and losing everything three consecutive times, we decided to migrate to Dhaka, in search of livelihood and a place to live,” Roksana Khatun from Cox’s Bazar said in an interview with the author.

People like Roksana bear the brunt of climate injustices firsthand despite contributing the least to climate change. It compels them to think about their daughters’ marriages before being displaced – not about their education or empowerment.

Roksana Khatun’s tale portrays the story of every climate-induced displaced person – those who lost their beloved family members, owned properties, last shelter, traditions and cultures, identity, chances of being educated and healthy, and much more.

Vicious cycles of debt impacting climate refugees

Increasing debt burdens in the worst climate-affected countries have constrained developing nations from investing in climate action. This has contributed to the expanding volume of climate-induced displacement.

International lenders are estimated to drain $487 billion from Global South countries in 2024. Sovereign debt distress, converging with the climate debt trap, complicates these poor countries’ battle against climatic challenges.

Bangladesh’s sovereign debt burden has escalated due to increasing climate debts, making the country unable to respond adequately to frequent natural disasters.

By June 2024, Bangladesh had $103.79 billion in external debt. Meanwhile, it is also one of the developing countries that receives 70% of its climate finance as debt.

Moreover, 80 low- and middle-income countries are at risk of debt distress, and 75% of them are classified as climate-vulnerable.

In the post-uprising period, financial instability, along with frequent floods and cyclones, challenged the Interim Government, entangling sovereign and climate debts.

Bangladesh witnesses $1 billion in economic losses every year due to tropical cyclones. Natural disasters such as heatwaves, droughts, and seasonal changes have exacerbated problems related to health, shelter, food shortages, access to clean water, and education.

As a result, the Interim Government and previous administrations had to rely on long-term loans to respond to interconnected issues in the aftermath of calamities. This hampers adequate climate action. People affected by climate loss and damage (L&D) are the worst sufferers.

Thus, displacement and destitution become the ultimate destiny for these people.

An estimate published suggests that by 2050, one in seven Bangladeshis – totaling 13.3 million people – will be climate-induced displaced.

The worsening climate-induced internal displacement situation requires effective rehabilitation measures. Unfortunately, many of these people end up living in even less habitable slums of Dhaka, worse than their lost homes.

Effective rehabilitation undoubtedly demands community-based approaches by integrating displaced people at the frontline.

In this circumstance, Bangladesh can blend external debts, climate debts, and climate displacement into a single solution – debt-for-L&D swap. Experts still consider it part of debt-for-development swaps.

However, the term should be explicitly used while portraying the sufferings of the most climate-affected people. Advocates and activists must call for “debt-for-L&D swaps,” not merely “debt-for-development swaps.”

Debt-for-L&D swaps will help the Bangladesh government reduce or cancel its sovereign and climate debts in exchange for implementing projects that facilitate people affected by climate losses and damages.

The interim government and any future elected government should adopt plans and policies supporting debt-for-L&D swaps to particularly benefit climate-induced displaced populations.

Debt-for-L&D swaps as a triple-win solution

Climate finance in the form of loans has pushed vulnerable countries so far that Bangladeshi people’s per capita climate debt has climbed to $80.

In such a situation, debt swapping offers a reassuring pathway. In essence, creditor countries or multilateral institutions reduce or cancel the debtor country’s medium- or long-term loans in exchange for infrastructure development in the debtor country.

In the case of a debt-for-L&D swap, a third-party organization would implement an L&D project in Bangladesh, and the government would pay for the implemented project in local currency to the organization.

In advance, the creditors would pay the organization an amount equivalent to the debtor’s loan to implement the project.

As a result, Bangladesh would invest local currency to support L&D-affected people. It would also help initiate more community-based approaches to effectively rehabilitate displaced persons, while further lightening the country’s debt burden.

This mechanism would therefore be a triple-win solution for Bangladesh.

First, the debt swap would free up fiscal space for investing in critical national and community development initiatives, reducing the debt burden of the country. Bangladesh’s economy is entangled with debt stress and financial frustration.

Hence, such measures would be a panacea for the government and locals.

Second, this mechanism would directly channel L&D funding to the government and benefit loss- and damage-affected people. This would surely support the government in implementing community-led rehabilitation measures for climate-induced displaced populations.

Rather than repaying the loans, Bangladesh could invest in responding to climate disasters and adequately support the affected people.

Third, implementing this mechanism would be a promising step towards ensuring debt and climate justice. Historical economic and climatic injustices and Northern governments’ liability to provide reparations would be recognized.

It would aid those whose sufferings are worst but whose contribution to climate change is the least – without any conditionalities or additional debts.

In conclusion, if Bangladesh advocates for debt-for-L&D swaps, discusses them at local and global forums, and finally implements them domestically, it will lighten the country’s debt burden and simplify the complex dynamics of sovereign-climate debts.

It would help the country reduce debts, take proper climate action, and provide effective rehabilitation for climate-induced displaced populations.