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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is president and CEO of the International Rescue Committee
Humanitarian aid is facing its version of the 2008 financial crisis, with billions of dollars in catastrophic losses. But unlike the aftermath of the Lehman Brothers collapse, there is no government rescue package coming. No safety net is being rolled out for the 300mn people globally who now find themselves in humanitarian need. Instead, a cascade of overlapping crises — from war and climate change to economic uncertainty and political unrest — are crushing the world’s most vulnerable communities, with a shrinking pool of aid nowhere near enough.
The figures are grim. This year, the global humanitarian appeal — the total assessed need for aid — stood at $47.4bn. In 2023, low- and middle-income countries paid $1.4tn in public debt service, $225bn of it in interest.
As need is rising, donor fatigue and shifting political priorities are driving aid dollars down, and domestic resource mobilisation in poorer countries is harder and harder. What is more, governments in poorer countries don’t just face mounting debt payments and high interest rates — these very factors are pushing their bonds to trade at steep discounts, as low as 50 or 60 cents in the dollar.
This is where we need creative thinking to reassert humanitarian priorities in the face of financial and political realities. One avenue is debt swaps, recently used to support development and environmental goals, but never yet used for humanitarian purposes.
There are several ways to structure debt swaps. One relevant model involves buying back a country’s existing sovereign debt at its discounted rate and replacing it with a new loan obligation. These new bonds, backed by political risk insurance from development finance institutions or private insurers, carry lower interest rates due to higher credit ratings than the original high-risk debt. The difference between the original debt value and the new loan, plus the lower interest rate, creates a cash flow for public goods — all while lowering the country’s external debt.
Take Belize’s 2021 “Blue Bond”. Backed by a US Development Finance Corporation guarantee, it allowed the country to replace $553mn of debt with a reduced $364mn loan with a Moody’s Aa2 rating and cut debt service costs by $200mn over 20 years. This resulted in a $180mn endowment fund for environmental protection over two decades. The financial move meant Belize could reduce its debt and protect 30 per cent of its oceans.
This isn’t charity. It is financial engineering that provides a triple dividend: governments can get breathing room on their balance sheets without complex restructurings; investors receive market returns while delivering social impact; and crisis-affected communities gain access to sustained, predictable funding for life-saving services.
The climate movement is already leveraging “debt-for-nature” swaps — transactions in which sovereign debt is purchased and restructured on the condition that the savings are used for environmental protection. These models work. Ecuador, for example, recently restructured debt and redirected over $1.5bn in savings towards marine conservation and debt relief. Ivory Coast and Benin completed €400mn-€500mn development swaps with World Bank guarantees to fund sustainable development goals.
It is time to adapt that mechanism for humanitarian needs as well. NGOs like mine can do our part in encouraging and brokering debt swaps. But this solution also requires deliberate systems change. The World Bank and other multilateral development banks can do more.
That means designing guarantee tools suited to fragile and conflict-affected settings, not just infrastructure or climate resilience. It will also mean working hand in hand with a wide range of partners, including civil society organisations and private investors. Standard templates must be developed and technical assistance offered so that debt swaps become plug-and-play rather than bespoke legal exercises. Donors — especially G7 governments — must make humanitarian outcomes a core financing objective.
Humanitarian emergencies are political emergencies. But they are financial emergencies too. Today, the world’s most fragile states are being forced to choose between paying bondholders or paying teachers, between servicing debt or supplying medicine. That is not a choice. It is a systemic failure. Humanitarian debt swaps offer a way forward — not as a silver bullet, but as a practical, scalable and morally urgent step. The case is clear. The mechanism is proven. The need is immediate. It’s time to act.
