Fragile and conflict-affected states are home to half of the world's extreme poor, and account for half of all low-income countries in or at risk of debt distress. Debt swaps offer one way to alleviate this pressure on fragile states. Since 1987, debt swaps have mobilized over $3 billion for environmental and conservation goals. This paper examines how the mechanism can be adapted to fund humanitarian response in fragile and conflict-affected contexts, where declining aid and record debt burdens compete for the same resources.

Making debt swap transactions viable in fragile settings means addressing a structural barrier: the provision of credit guarantees. Debt swaps require credit enhancement to attract investors, but the elevated risk profile of fragile contexts can make it challenging for a single institution to provide full coverage. This paper argues that a blended guarantee model, layering partial commitments from multilateral development banks, development finance institutions, private insurance and/or concessional donor capital, is the most viable path forward. With humanitarian organisations helping to design, govern and monitor the use of proceeds, debt swaps can create multi-year financing for essential services in places where needs are acute and traditional funding is increasingly constrained.

To discuss this work or explore partnership opportunities, please contact Sarah.Case@rescue.org.

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