The tiny African island nation of Seychelles blue bond economic roadmap using an integrated approach to the sustainable development of ocean resources, has inspired Belize to attempt a similar approach to lower its debt. Belize recently announced a tender offer for its existing $553 million Eurobond due in 2034, which will be financed by the concurrent placement of a blue bond. Will Belize be able to find the same success as Seychelles, the first sovereign entity to issue a blue bond, by leveraging its “Blue Bond Economy” playbook to reduce national debt?
The Breakdown You Need to Know:
The Blue bond concept aims to use debt proceeds to finance water-related and/or ocean-based projects. In 2020, Seychelles made 30% of their exclusive economic zone marine protected areas, and have been able to use the blue bonds to ride the waves towards lowering national debt.
It started back in 2016, when international environmental The Nature Conservancy (TNC) bought some of the Seychelles’ debt from lenders at a hair cut. The Seychelles government then agreed to pay TNC back over time, and to funnel the savings from its lower interest rates into ocean protection, which it has now achieved.
Here’s a little background on how the 2018 Seychelles $15 million, 10-year blue bond works: It’s backed by a $5 million guarantee from the World Bank, along with a $5 million concessionary loan from the Global Environment Facility and investors will receive a 6.5% annual interest rate. This blue bond is modeled on the green- labelled debt which was pioneered by the World Bank and first emerged a decade ago. Moody’s
Belize Banking on Blue:
Belize’s tender envisions a 45% haircut on the currently outstanding principal, which would reduce the country’s debt by approximately 9% of GDP. Since its inaugural debut bond in 2000, when the country was in the BB range, Belize has restructured its Eurobond four times and has not managed to reduce its debt burden. We’re still awaiting details of the country’s blue bond that have not yet been announced.
Seychelles being the first country to sell debt earmarked specifically for ocean projects make sense, especially because fishing brings in 97% of its annual export earnings and employs 17% of the nation’s population. The concept has seen some traction worldwide, with both the Nordic Investment Bank and the World Bank launching their own blue bonds to address specific marine protection issues.
Ocean protection can be a complex and expensive business and the Seychelles is trying to face this head on. There are extensive challenges like insufficient economic diversification, a small domestic market and vulnerability to environmental shocks. The pandemic has seriously exacerbated these challenges and wiped out some of the country’s development gains.
The African Development Bank recently approved a $10 million loan to the Seychelles to support the government’s COVID-19 response program. At the time when Seychelles blue bond was issued the country was rated BB- by Fitch and had a non-disbursing agreement with the IMF. It has since been upgraded to BB, but has since been downgraded to B on the back of the impact of the pandemic on tourism and the broader economy.
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