– Greater debt transparency builds investor confidence, helps reduce borrowing costs, and strengthens debt sustainability—reducing the risk of shocks that can lead to a debt crisis
By Yan Liu
Public debt is projected to reach nearly 100 percent of global gross domestic product by the end of this decade, surpassing even pandemic-level highs. Governments, particularly those in emerging market and developing economies, face both mounting debt service costs and shrinking room to manoeuvre in government budgets. The result is fewer resources for social programs or investments, reduced capacity to respond to shocks, and higher borrowing costs.
In addition to issuing more debt, countries are increasingly using complex and opaque forms of financing. New debt instruments such as guaranteed, securitized, and collateralized debt contracts linked to public-private partnerships, state-owned enterprises, or SOEs, and pension funds have appeared on the scene. Because of the novelty and complexity of these instruments, more debt now remains hidden from policymakers and the public. And often it comes to light too late, during the debt restructuring process.
When revealed, hidden debt can erode confidence in the government, in its data, and its administrative capacity to provide an accurate representation of the country’s finances. This may lead to higher borrowing costs, and, if the size of the hidden debt is substantial, put debt sustainability at risk and potentially trigger a debt crisis.
Simply put, you can’t manage what you can’t see, and this is why we need light to cut through the fog surrounding the mountain of debt. We need the right laws in both borrower and creditor countries and strong institutions to do the reporting and debt management the laws require. Debt transparency is clearly a public good.
Law’s essential role
Law is the cornerstone of debt transparency. Public debt is so important that the question of whether the executive or legislature has ultimate authority to borrow on behalf of a country is spelled out in many national constitutions. Laws tell us who can sign a valid loan contract on behalf of a country and whether and under what conditions state resources can be used as collateral. At the same time, we have found that, in many cases, laws on public debt remain inadequate, murky, or poorly implemented.
Recently, the IMF hosted a conference on legal reform and debt transparency which brought together policymakers, representatives from borrower and creditor countries, civil society organizations, the private sector, and academia. The goal was to sharpen our collective understanding of the links between legal frameworks and debt transparency.
The gathering followed a recent review by the IMF Legal Department on debt-related legislation that found major gaps in 85 countries. For example, fewer than half of the countries surveyed require debt management and fiscal reporting by law, meaning that no one government agency or office is responsible for managing debt. Whether a country can handle certain types and amounts of borrowing or bond issuances is never fully known by policy makers and parliamentarians. In many cases, the legal definition of public debt is too narrow and excludes SOEs or types of borrowing, such as sub-national lending. As a result, some forms of debt fall outside the sovereign’s awareness. This debt accumulates off the balance sheet, without oversight.
Authorities should be held accountable for their decisions about public debt. This means that the state audit institution should have the authority to conduct audits on public debt and report them.
What else must countries do to overcome the challenge of hidden debt?
- Enact laws on public debt management that provide for debt disclosure. Policies and political priorities may shift, but legal obligations remain. A strong legal framework defines what counts as public debt, who can borrow, and what must be disclosed.
- Implement those laws. Some countries have adopted solid legislation to find they are ignored in practice. Ultimately, laws are only as good as the systems and institutions that enforce them.
- Use legal reform as a bridge to build consensus and alignment. It is not just about good rules—it’s about resilience. Law reform can transform debt transparency from a short-term policy choice to a long-term public commitment. Experience shows that when stakeholders across government, civil society, and international and creditor communities are all involved, reforms are implemented and defended.
The IMF has been doing extensive work on debt transparency over the years:
- Our 2023 policy paper, Making Public Debt Public, looked at factors that underlie the lack of disclosure and the IMF’s role in reforms. We found large debt disclosure gaps in low-income countries and emerging market economies and attributed the gaps to the increasing share of non-marketable and SOE debt.
- IMF debt-limit policies now require more detailed disclosure of debt information, including the publication of the holders of a country’s public debt.
- In recent years, our Article IVs, the IMF’s annual health checks of member economies, have called for a more structured and transparent assessment of data adequacy. This assessment, which includes debt data, will inform discussions with the authorities on broader data issues and prioritize efforts to improve fiscal and public debt transparency frameworks through our capacity development work.
- The IMF has also scaled up technical assistance and training on debt transparency, delivering more than 200 capacity development missions just on debt management in the past two years. The Legal Department has expanded its capacity development efforts in this area through legal reviews, diagnostic missions, advisory support, and drafting of laws and regulations.
Ultimately, transparency isn’t just about data collection; it’s about legal clarity, institutional accountability, and public trust. It’s important for countries to put their house in order, but to get there, we must have a strong foundation—that is, the right laws followed by strong institutions that implement them.
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