Transforming Debt into Opportunity: Côte d’Ivoire’s Lesson on Debt-for-Development Swaps
In an age where national debts are a growing concern, the potential to leverage debt for positive development emerges as a beacon of hope. Recently, Côte d’Ivoire demonstrated how strategic debt management can be a powerful engine for growth through its innovative Debt-for-Development Swap initiative.
Understanding the Debt-for-Development Swap
What is a Debt-for-Development Swap?
A Debt-for-Development Swap is a financial arrangement where a country buys back its expensive debt in exchange for investments in development projects. In the case of Côte d’Ivoire, this approach was made possible through a Policy-Based Guarantee (PBG) from the World Bank, allowing the country to secure a new commercial loan at significantly reduced interest rates.
How the Debt Swap Worked
With the proceeds from this new loan, Côte d’Ivoire managed to repurchase up to EUR 400 million worth of older, high-interest loans due in the coming years. This financial maneuver not only released EUR 330 million over the next five years but also generated savings equivalent to EUR 60 million in present value terms.
Prioritizing Development: The Road Ahead
Côte d’Ivoire pledged to direct a significant portion of these savings toward building 30 lower-secondary schools, ultimately benefiting around 30,000 students, with half of them being girls. Their progress will be meticulously tracked through an ongoing Program for Results (PforR) operated by the World Bank.
Key Factors for Successful Implementation
The success of Côte d’Ivoire’s Debt-for-Development Swap hinged on four crucial factors:
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Commitment to Macroeconomic Stability:
Côte d’Ivoire showed a strong commitment toward fiscal discipline with a target to reduce its fiscal deficit from 6.8% of GDP in 2022 to 3% by 2025. Encouragingly, the deficit is projected to fall to approximately 4% of GDP in 2024, thanks to improved revenue collection and reduced spending. -
Moderate Debt Risk and Strong Management:
While facing some liquidity pressures, the government executed a substantial debt buy-back in early 2024, utilizing US$1.9 billion from a new Eurobond sale. This proactive approach, along with the PBG-backed swap, enhanced the country’s debt sustainability by decreasing debt payments in 2025, thereby freeing essential fiscal resources. -
Strong Commitment to Development:
Recognizing the pressing need for educational reform, the government plans to invest these savings directly into the education sector. With a low Human Capital Index of 0.38, Côte d’Ivoire faces increasing pressure to accommodate an annual growth rate of 2.4% in student enrollment. -
Strong Dialogue and Trust:
Côte d’Ivoire’s longstanding relationship with the World Bank—grounded in over US$6 billion of investments—fostered open communication and made effective use of the bank’s financial tools to achieve desired outcomes.
Moving Forward: What Lies Ahead?
The experience of Côte d’Ivoire serves as a crucial case study for other nations exploring debt-for-development swaps. The successful implementation emphasizes that when undertaken with foresight and diligence, these financial tools can unlock funds for significant developmental projects.
As global financial landscapes continue to evolve, the lessons from Côte d’Ivoire will be invaluable in shaping effective debt management strategies worldwide.
Learn More
To further explore how debt-for-development swaps can support educational initiatives, visit worldbank.org/fund-education.
With a clear understanding of how debt can be transformed into an opportunity for growth, countries can chart a better course for their financial futures, turning challenges into vehicles for sustainable development.
