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Debt Transparency: An Open Government Solution to Mitigating Debt Crises

Transparencia de la deuda: El gobierno abierto como solución para mitigar la crisis del endeudamiento

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Jessica Hickle|

Growing debt over the last two decades has left many resource-rich African countries on the verge of debt crises. Since the early 2000s, African countries have steadily taken on increased amounts of debt while the quality of public institutions and debt management policies have deteriorated over the same period. As commodity prices dropped unexpectedly during the pandemic, countries have been left with even greater challenges for repaying debt.

Hidden debts account for a significant portion of this new debt. Chinese lending for big infrastructure projects – much of which is not officially tracked – has contributed significantly to new debts since the mid-2000s. And these hidden debts complicate efforts to mitigate debt crises. A lack of transparency around debt owed to China and other lenders makes it difficult for international financial institutions (IFIs) to accurately estimate countries’ debt burdens, provide recommendations to limit debt distress, and determine appropriate debt relief packages.

 

Why Debt Transparency Matters

Debt transparency is a cornerstone of accountable, sustainable management of debt that can benefit leaders and citizens alike. Debt transparency can:

  1. Maintain sovereignty over domestic infrastructure and natural resources. Secrecy around the amount and terms of debt repayment has forced some countries to make steep concessions or cede control of their resources to China. 
  2. Encourage investment from potential lenders. Debt transparency allows potential lenders to more accurately assess risks associated with buying bonds issued by particular countries. By contrast, uncertainty about countries’ debts leads lenders to increase the cost of borrowing or avoid investing at all. 
  3. Increase government credibility. When governments lose the confidence of investors and their funding, they have reduced capacity to deliver key services to citizens. As a result, the public may become unsatisfied with or lose confidence in elected officials. 

PHOTO: Credit: Chronis Yan via Unsplash

The Open Government Solution

An open government approach – incorporating transparency, participation and public accountability – can help tackle the challenges relating to hidden debts. Here are a few reform recommendations OGP members can take to get started.

  • Create a clear legal framework for public borrowing which includes transparency and oversight. Public debt management objectives, strategy, and processes should be publicly accessible and may be outlined in legislation. Such legislation should cover borrowing from private and public sources.
  • Publish an annual strategy defining how the composition of the debt is projected to evolve over the medium term. This should include an analysis of risk and cost, and take into account the constraints the country faces.
  • Increase the transparency of macro-economic indicators related to debts, including the government debt-to-GDP ratio, debt-carrying capacity, the stock of domestic and external debts, and the interest due on these debts. For each indicator, publish the underlying data sources and the method used in calculations. 
  • Increase transparency of parallel indicators, including current account balance, GDP growth, remittance payments, and reserve coverage. 
  • Conduct and publish debt sustainability analysis to assess debt vulnerabilities and minimize debt distress. Resources such as the IMF-World Bank Debt Sustainability Framework for Low-Income Countries can guide countries in such analysis. 

 

Debt transparency has so far been relatively unexplored in OGP commitments, including those by OGP members in Africa. Notably, in its 2017 action plan, Ghana made a commitment to publish information on fiscal deficits, the government’s borrowing, and debt management. However, none of this information has been made accessible to the public so far. Sierra Leone, more foundationally, carried out a census of all existing treasury accounts, an important step to accounting for debt. As more than 100 OGP members begin this year’s co-creation process and consider the ways in which they can build back better from the COVID-19 crisis, debt transparency presents an opportunity for countries to invest in their own futures. 

 

Featured Image Credit: Ehud Neuhaus via Unsplash

Comments (1)

sergio antonio aguirre Reply

Considero importante el tema de la transparencia de los gobiernos en la deuda, seria mejor si los organismos internacionales y paises acreedores colaboraran en en presentar los resultados de sus creditos, en virtud que mucho de ellos se pierde un buen porcentaje en corrupción y gastos de funcionamiento de burocracia nacional e internacional.

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