Barbados has completed a unique debt-for-climate deal to fund water and sewage projects that can withstand climate change and improve the quality of life on the notably arid island.
With help from international partners, Barbados replaced its old, expensive debt with cheaper financing. This saved US$125 million, which will be used to improve water management and make water and food more secure.
CIBC Caribbean, as the lead organizer, closed the Sustainability Linked Loan deal last week. The loan was supported by US$300 million in guarantees—US$150 million from the Inter-American Development Bank (IDB) and US$150 million from the European Investment Bank (EIB), as part of the European Union’s Global Gateway Initiative. With these guarantees, Barbados secured a long-term, local currency loan at good terms, arranged by CIBC Caribbean, with investments from regional banks.
The debt change will help fund the upgrade of the South Coast sewage plant into a modern water recycling facility, along with other related facilities. This water recycling plant, one of the first in the Caribbean, will produce water that can be used for farming irrigation and replenishing groundwater.
The extra funding will also be used to reduce water waste and improve the sewage system. Reducing pollution in the ocean and groundwater will protect marine ecosystems, coral reefs, and public health. The IDB and the Green Climate Fund (GCF) are providing a total of US$110 million upfront for the project, including a US$40 million grant from the GCF.
Barbados is one of the countries with the least available water in the world. On average, each person has four times less water than the global average, and this problem is expected to get worse with climate change.
Barbados also faces high food import costs because farmers don’t have enough water to grow more crops.
The debt-for-climate deal is structured as a Sovereign Sustainability-Linked Loan (SSLL), the first SSLL tied to a national water security project. The loan’s targets are based on the amount and quality of water produced by the upgraded plant. If these targets are not met, the government will pay a penalty, which will go into an environmental trust fund, the Barbados Environmental Sustainability Fund.
The IDB and CIBC Caribbean worked as Sustainability Structuring Agents with support from CIBC’s Global Sustainable Finance Team. Sustainalytics, a leading sustainability rating company, reviewed Barbados’ Climate Resilience Sovereign Sustainability-Linked Financing Framework, finding it to follow international best practices. They rated the project’s targets as “strong” and its sustainability goals as “highly ambitious.”
This deal will help Barbados move forward with its climate resilience plans, which are part of the country’s Nationally Determined Contribution (NDC) and Investment Plan for Prosperity and Resilience. These plans align with the Paris Agreement and the Roofs to Reefs Program, focusing on improving water availability, food security, and reducing marine pollution.
Prime Minister Hon. Mia Mottley, SC, MP, said: “In the face of the climate crisis, this groundbreaking deal is a model for vulnerable countries, bringing quick benefits for Barbados. With funding from our partners, we are building a state-of-the-art facility to improve water management, food security, and resilience. This shows how innovation and cooperation can bring both environmental and financial gains.”
Source: Barbados GIS.
