From Debt Service To Development: How Debt Swaps Could Help Finance Health In Africa

By Mário Augusto Caetano João

For many years, debt swaps occupied a relatively small corner of development finance. Today, as countries confront tighter budgets, high borrowing costs and declining development assistance, these instruments are attracting renewed attention.

The appeal is straightforward. A well-designed debt-for-development swap can improve the terms or profile of existing debt while committing part of the resulting fiscal savings to an agreed development priority. Debt management and human development, often treated as competing demands on the same budget, can advance together.

The international experience is becoming increasingly diverse. Côte d’Ivoire used World Bank Group support to replace expensive commercial debt with lower-cost financing and direct savings towards education. Barbados completed a debt-for-climate-resilience operation expected to generate US$125 million for investments in water security. Debt-for-nature conversions have helped finance conservation in countries including Belize, Ecuador and Gabon.

Health offers equally important lessons. Since 2007, the Global Fund’s Debt2Health initiative has facilitated 14 transactions involving bilateral creditors and 11 implementing countries. Close to US$500 million in debt has been converted into approximately US$330 million for health programmes.

African participants include Cameroon, Côte d’Ivoire, the Democratic Republic of Congo and Ethiopia. Côte d’Ivoire converted debt owed to Germany into resources for HIV programmes, while Indonesia has used conversions with Germany and Australia to strengthen its tuberculosis response.

These examples show that there is no single debt-swap template. Some transactions involve a creditor cancelling bilateral debt in exchange for domestic investment. Others use guarantees to refinance or repurchase expensive commercial obligations on more favourable terms. Some channel resources through an established international health institution; others operate through national budgets and programmes.

The common principle is the conversion of a debt-management opportunity into measurable public value.

The experience also suggests several conditions for success.

First, a swap must create genuine fiscal benefit after transaction costs, guarantees and fees are considered. Repackaging low-cost debt without improving the country’s position adds complexity rather than value.

Second, the development objective should be defined before the transaction is completed. Costed priorities make it easier to connect financing to outcomes.

Third, the expenditure should be additional. If swap proceeds replace an equivalent existing allocation, the accounting may change without expanding services.

Fourth, governance and verification must be built into the design through transparent terms, traceable savings, clear responsibilities and reporting on results.

Finally, swaps should strengthen national systems. Parallel structures may offer short-term convenience but can fragment planning and weaken lasting institutional capacity. The strongest mechanisms align with national priorities and operate through credible public financial management arrangements.

Debt swaps are not a universal solution. Transactions can be technically demanding, time-consuming to negotiate and relatively modest compared with a country’s total financing needs. Their suitability depends on the composition of the debt portfolio, the willingness of creditors, achievable savings and the presence of programmes capable of using those savings effectively.

Nor can they substitute for domestic resource mobilisation, prudent debt management or economic diversification. Countries still need to improve tax administration, reduce leakage, manage exemptions and ensure that public resources are used efficiently. Innovative finance works best when it complements these fundamentals.

Angola’s experience now places it within this evolving international practice. With World Bank and Multilateral Investment Guarantee Agency support, the country is using more favourable financing to prepay higher-cost commercial debt. Most of the fiscal savings will support 30 additional secondary schools expected to benefit more than 32,000 students.

This is significant not only for education, but also for the wider financing architecture it establishes. It demonstrates how guarantees, active debt management and a clearly identified development programme can be brought together within one transaction.

The question is where this experience might lead next. Angola’s 2026 State Budget illustrates the potential relevance of health. Almost 46% of planned expenditure is allocated to debt repayments and interest. Health receives approximately Kz2.1 trillion, which is 6.32% of the budget and about 1.5% of GDP. Maternal mortality remains around 170 deaths per 100,000 live births, according to the World Health Organization.

These realities do not make a debt-for-health swap automatic. They make it worthy of serious examination. Any future mechanism would need to reflect Angola’s debt portfolio, fiscal framework and national health priorities, while demonstrating credible savings, additionality and measurable impact.

A focused transaction could potentially support areas where results can be clearly tracked: functioning primary healthcare facilities, medicine availability, maternal and child health, workforce capacity or disease prevention.

Angola has already shown that debt management can be connected to investment in human capital. International experience shows that the same principle can be applied to health.

Debt-for-health swaps may therefore represent a promising new frontier for Angola: not a replacement for sound fiscal policy, but a practical instrument through which financial savings can be translated into healthier lives.