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Spain and the World Bank launch a debt swap hub to free up development funds

The Spanish Ministry of Economy announced on Tuesday that the World Bank and Spain have partnered to help countries release money for sustainable development projects through debt swaps.

Many countries spend more money on debt servicing than they do on development. As a result, many nations have to come up with creative solutions to fund projects. These can range from funding schools and water sanitation projects to protecting coral reefs.

The Spanish government announced that the Global Hub for Debt Swaps for Development will be launched at the Finance for Development Summit in Seville (southern Spain) and provide countries with financial and technical assistance when they are looking to reallocate funds to projects such as food security and climate adaption.

Over the past year, countries from Barbados to Ivory Coast used debt swap mechanisms to refinance more expensive bonds or loans at lower rates and pledged to use the savings to fund social and environmental projects.

Critics say that such deals are time-consuming, expensive and difficult to replicate. This has prevented a wider adoption of an important tool, according to advocates, to help countries reduce their debt burdens and tackle development issues.

Carlos Cuerpo, Minister of Economy, Trade, and Business in Spain, said: "We've heard the message loud and clear from many countries that we need practical tools to make debt swaps easier, faster, and accessible."

The Hub will be supported by Spain with 3 million euros, and the World Bank will host an "multi-partner trust to finance technical assistance".

Ajay Banaga, World Bank Group president, said: "By turning pilot projects into repeatable solution, we can reduce debt burdens and unlock investment in education, healthcare, and opportunities."

In the past two decades, Spain signed 47 agreements, which resulted in the cancellation of 1,64 billion euro of debt.

The Economy Ministry announced that the government has created a new framework for signing bilateral debt swaps totaling 300 million euro over the next five-year period.

(source: Reuters)