The World Bank has released a new report highlighting the increasing reliance of developing economies on off-budget and complex borrowing mechanisms. This trend, according to the report, complicates a comprehensive assessment of public debt exposure amid a more restrictive financial environment.
To address these issues, the document recommends a fundamental shift in how debtor and creditor countries present and disclose debt information. This includes expanding the scope of what is disclosed and providing more detailed data on each loan.
The report, titled "Radical Debt Transparency," notes that while the proportion of low-income countries publishing debt data has risen from less than 60% in 2020 to over 75%, only 25% disclose information about newly contracted debt with loan details. The emergence of complex and often opaque financing mechanisms, such as private placements, central bank swaps, and guaranteed transactions, further complicates information presentation.
"Recent cases of undeclared debt have highlighted the vicious cycle that lack of transparency can create," stated Axel van Trotsenburg, Senior Managing Director of the World Bank. "When hidden debt comes to light, financing disappears and conditions worsen. Countries resort to opaque agreements backed by guarantees. To break the cycle, achieving radical debt transparency is crucial for accessing timely and reliable data."
The report also indicates an increase in domestically issued debt but points out inadequate disclosure standards. Additionally, countries are engaging in partial and confidential "silent" debt restructurings with certain creditors, depriving markets of crucial information.
Debtors and creditors are urged to take urgent steps to improve transparency practices. Recommendations include implementing legal and regulatory reforms requiring loan contract transparency and credit condition disclosure, full participation of creditor countries in comprehensive debt reconciliation processes, more frequent audits with better national oversight, and public dissemination of restructuring terms once agreements are finalized.
"Debt transparency is not just a technical issue; it is a strategic public policy that builds trust, reduces borrowing costs, and attracts investments," said Pablo Saavedra, Vice President for Prosperity at the World Bank. "Radical transparency not only supports debt sustainability but also paves the way for private sector investment to drive job creation."
Central to the World Bank's efforts to promote debt transparency is its technical assistance program which drives country-specific reforms and its Debt Reporting System—the most important source of verifiable data on external debts for low- and middle-income countries. Efforts are underway to expand this system to include domestic debts and further enhance data quality.