Why debt-for-nature swaps won’t save Sri Lanka: the case for community-controlled conservation

Working paper

Sri Lanka’s US dollars 36.6 billion debt crsis has sparked interests in Debt-for-Nature Swaps (DFNS), which are instruments exchanging sovereign debt for environmental commitments worth up to US dollars 1 billion. Yet evidence shows DFNS delivers minimal debt relief, reducing total debt by just 3% versus 21% for traditional restructuring, while imposing transaction costs of 15%-25% and risking community displacement.

Beyond these financial limitations, DFNS fundamentally commodifies nature as tradable assets, echoing colonial patterns displacing Indigenous communities, while transferring ecosystem control to external actors. They systematically ignore environmental debts from the very projects being restructured and concentrate power among foreign creditors at communities’ expense.

Rather than accepting these flawed mechanisms, this analysis reveals the need for comprehensive reforms prioritising community custodianship, land rights , and historical environmental justice. Alternative approaches focusing on tangible conservation measures – such as construction sector decarbonisation, upper-watershed restoration, and urban wetland protection – offer more direct environmental benefits while avoiding the pitfalls of abstract ecosystem commodification.

Authors: Kelegama, T; Gunathilaka, M

• Publication status: Published
• Publisher: Institute for Political Economy
• Place of publication: Colombo, Sri Lanka
• Publication date: 2025-09-12
• Language: English