As global leaders gather in Sevilla for the 4th International Conference on Financing for Development (FF4D), one issue will top the agenda: sovereign debt and its growing toll on development progress.

Today, over half of low-income countries are in or near debt distress. Debt service is crowding out fiscal space to investment important areas such as education. So much is going toward debt payments, there’s little left for the public priorities which are needed most, like healthcare, education, climate resilience or infrastructure. For example, UNESCO estimates that the government servicing on low income countries averages 72% of GDP and that many of these countries spend more on debt servicing annually than on education.

However, there are promising solutions to reduce or restructure debts in exchange for social and sustainable development. In these “debt swaps”, the creditor forgives or restructures part of a country’s debt in exchange for social investment, which offers a practical, and often underutilised, solution. For example, back in 2016, the Seychelles completed the world’s first “debt-for-nature” swap focused on marine conservation, for the value of US $21.6 million.  Since then, in 2023, Ecuador executed a $1.6 billion debt swap to protect the Galapagos Islands and part of the Amazon, from the U.S. International Development Finance Corporation (DFC) and guarantees from the Inter-American Development Bank. These have shown how the right partnerships and financial structuring can unlock millions for environmental conservation while also delivering fiscal benefits.

Now, as leaders from all corners of the development finance ecosystem gather in Sevilla; we see a defining moment to leverage debt-swap innovation with a focus on human capital—a space which has so far has been relatively overlooked. It’s clear there is a growing consensus that investments in human capital—health, education, and nutrition—are foundational to long-term growth. The World Bank’s Human Capital Index reveals this untapped potential: a child born in a low-income country today will be 64% more productive if they have access to full education and health. Governments know where to invest but lack the flexibility to act. So where do we go from here?

Unlocking Potential, Confronting Constraints

Debt-for-development swaps have demonstrated that it is possible to restructure sovereign liabilities while generating new funding for national priorities in and outside of environment. For example, Côte d’Ivoire and France completed a $77 million debt swap in 2023 that earmarked savings for education. With support from the Global Partnership for Education’s pioneering Debt2Ed mechanism, the transaction became part of a broader compact that mobilized an additional $182 million in financing for education from multiple partners. Yet, despite this promise, transactions remain rare and modest in scale. Four key bottlenecks explain why:

1. High Transaction Costs and Fragmentation
   Swaps often require extensive legal, financial, and policy structuring support, with complex co-ordination between the various stakeholders, from creditors to development partners and local implementers. This complexity and fragmentation is compounded by the lack of in-house government capacity to lead such processes. With no mechanism to streamline, many deals are designed from scratch, slowing processes and driving up transaction costs.
2. Limited Scale and Creditor Participation
   Most swaps have addressed only a small portion of national debt, often due to limited participation from major creditors. The Seychelles’ debt-for-nature swap, widely seen as a success, restructured just $22 million, less than 3% of the country’s total debt. Larger creditors, including multilaterals and many non-Paris Club lenders, typically do not participate, and commercial debt swaps depend heavily on market timing and the availability of third-party financiers.
3. Governance and Monitoring Gaps
   Confidence in how funds are used post-swap is essential. But many countries lack ready-to-deploy governance structures that satisfy donor and creditor requirements. As a result, swaps have often involved creating new trust funds or external oversight bodies. While these can provide transparency, they also duplicate existing systems. In the recent larger World Bank-supported Côte d’Ivoire’s education swap, the use of national budget systems for fund disbursement, backed by strong monitoring, was seen as a breakthrough that avoided parallel structures while still ensuring accountability.
4. Ad Hoc and Uncoordinated Deal Flow
   There is currently no shared mechanism to identify, prepare, and coordinate potential swap transactions. Most past deals emerged from bilateral relationships or isolated initiatives. Countries with viable needs and debt profiles often do not pursue swaps because they lack a clear entry point or technical support. As a result, the global deal flow is fragmented, and the model has not achieved systemic traction.

A Collaborative Solution

To address these concerns, what if there were a Human Capital Debt Platform, a shared initiative to support governments, creditors, development actors and other stakeholders to scale debt swaps into viable tools for investing in a country’s development? This does need to be a new institution, but rather a collaborative mechanism to standardize what works, reduce transaction costs, and build a pipeline of impactful deals. It would be designed to complement, not compete with, other debt swap efforts, and to align with broader development goals including climate resilience and adaptation.

We envision this could achieve a multiplier effect of desired impacts, including:

1. A Shared Pipeline of Viable Opportunities
   Identify countries where swaps can deliver maximum social return. This includes places where debt is high, budgets are tight, and human capital needs are urgent. The platform would also engage potential donors, creditors, and philanthropies to ensure the right actors are at the table. Swaps are not universally applicable, success depends on specific conditions: a debt profile that includes, or is heavily composed of, external or commercial debt, strong creditor willingness to engage, and government capacity to implement results-linked investments. Debt denomination matters too. Ecuador’s swap benefited from its dollarized economy, easing foreign exchange risk. While many swaps so far have been bilateral, there are opportunities to bring in third party for multi-partite swaps. Credit and/or grants from third parties to reduce debt obligation, i.e. buy down/ buy back of debt in exchange for channeling savings to social causes; may include credit enhancements such as third-party guarantees. This increases opportunities to structure swap deals with third party funding, reducing the reliance on the creditor and provides scope to leverage private players and raise domestic finance (e.g., through bonds) to free up sovereign funds. These considerations must be understood to target swaps effectively and avoid wasted effort.

2. Prioritize the Right Debts
   Focus on high-interest commercial or external debt, particularly where restructuring can deliver meaningful fiscal savings. The platform could help countries assess their debt portfolios and identify opportunities that are both financially sound and developmentally impactful.

3. Structure Smart, Scalable Deals
   Bring together financial engineers, legal experts, and multilateral partners to create transactions that are technically robust. The platform could maintain a menu of structuring tools, including concessional finance, blended capital, and private sector put options, helping governments select the right de-risking instruments for their context.

4. Embed Transparent Spending and Governance
   Offer governance models tailored to different levels of state capacity, ranging from third-party fund management to budget-tagging and performance-linked disbursement. These templates would help countries and creditors achieve mutual accountability while avoiding unnecessary parallel structures.

5. Monitor, Evaluate, and Share Results
   Support countries in tracking outcomes and sharing learning across transactions. Results dashboards, outcome-linked financing, and public reporting would reinforce credibility, improve design, and help build a growing coalition of partners.

Why Now?

There have been over 140 debt swaps globally, redirecting around $3.3 billion to social and environmental projects over three decades. Yet, this is less than $200 million per year, and the vast majority of debt swaps have been focused on nature and climate. Human capital sectors, despite offering some of the highest public returns, remain largely neglected.

A Human Capital Debt Platform could change that. It could bring coherence to a fragmented space, offering a one-stop mechanism for governments, creditors, funders and supporting organisations to collaborate on smarter, more equitable capital flows.

Join Us

In a moment of rising debt and shrinking development budgets, we need solutions that turn liabilities into long-term investments. So, as we all gather at FF4D, we would like to call for partners—particularly funders and technical experts with experience in debt structuring and sovereign finance—to come forward and connect with us, to join in this journey to co-design and seed this platform.

Debt can be restructured. But more importantly, it can be repurposed, to invest in the teachers, health workers, and children who will power our collective future.

This article draws on lessons from debt swaps executed in Seychelles, Belize, Ecuador, and Côte d’Ivoire, along with research by the IMF, World Bank, WFP, the Global Fund’s Debt2Health initiative and GPE’s Debt2Ed initiative.

Reach out to our partners to arrange a meeting or get involved: