Challenge
Public debt in developing countries has been increasing. The share of International Development Association (IDA) countries at high risk of external debt distress has doubled since 2013. The median interest payment among low-income countries (LICs) rose 128 percent between 2013 and 2017 while government revenues grew just 31 percent. This rise in debt-servicing costs has left many governments with less to spend on critical public services.
These developments pose a challenge to the global effort to end extreme poverty and achieve other Sustainable Development Goals (SDGs) by 2030. To meet those goals, countries will need to invest at least 4.5 percent of national GDP each year on infrastructure alone. Governments in developing countries will need to find ways to finance these investments without letting debt grow to unmanageable levels.
Debt transparency is critical in this regard. Policymakers in borrowing countries need reliable debt information to make informed borrowing decisions. Creditors, donors, analysts, and rating agencies need it to assess sovereign creditworthiness, and to appropriately price debt instruments. Citizens need it to hold their governments accountable.
Approach
The World Bank Group takes a comprehensive approach to enhancing debt transparency—through its own engagement with more than 100 low- and middle-income countries and in close collaboration with the International Monetary Fund (IMF).
The World Bank has one the highest rankings of the Aid Transparency Index. It proactively seeks to enhance debt transparency through technical assistance and operational engagements, such as Development Policy Finance Operations. The implementation of the revised Bank-Fund Debt Sustainability Framework for low-income countries led to improved debt coverage in debt sustainability analyses (DSAs), scaled up training on DSAs for government authorities, and publication of a new interactive guide.
In 2018, the World Bank has launched—together with the IMF—a comprehensive approach to address debt vulnerabilities in low-income developing countries. Debt transparency is a key pillar of this approach. It also seeks to promote debt transparency in the context of the proposed Sustainable Development Finance Policy under IDA19 and through its engagement in international fora and outreach to other creditors.
Results
In fiscal year 2019, the World Bank supported several important debt-transparency reforms through advisory services or operational engagements:
- In Egypt, an International Bank for Reconstruction and Development (IBRD) fiscal Development Policy Loan (DPL) includes a tranche-release condition that requires publication of an expanded medium-term debt management strategy (MTDS). The strategy includes policies regarding the issuance and size of guarantees for significant state-owned enterprises (SOEs), particularly utility SOEs.
- In Angola, technical assistance from the World Bank and the IMF resulted in the country’s first published MTDS—a document that was published on the Ministry of Finance’s website. The Bank also advised government authorities on how to improve other aspects of debt reporting and management.
- In Georgia, with technical assistance from World Bank, the Ministry of Finance approved and published a MTDS for 2019-2021.
- In Kosovo, the Ministry of Finance produces and publishes, on an annual basis, a medium-term debt management strategy as well as annual and quarterly debt bulletins. IBRD technical assistance helped the ministry to improve the quality of these products and encouraged the dissemination of public debt data. Since 2015, the ministry has also adopted the practice of conducting and disclosing annual DSAs. Finally, the country uses just-in-time data to make sure that all new loans, on-lending, disbursements and domestic debt is recorded within one week.
- In addition, the Bank made several important contributions to global knowledge and best practices on debt transparency. Two joint notes, prepared in collaboration with the IMF, were delivered to the G-20 in 2018. The first identified ways the international financial community can help low- and lower-middle-income countries improve the recording, monitoring, and reporting of debt. The second evaluated how the World Bank Group and the IMF can strengthen public debt transparency by disseminating debt data, publishing public debt analysis, enhancing creditor outreach, and promoting sustainable borrowing and lending practices.
IDA Results
- In Ethiopia, a current World Bank Development Policy Finance Loan (DPL) enhanced debt transparency through the publication of expanded annual debt reports and quarterly debt reports, from summer 2019 onwards. The expanded reports include enhanced reporting on debt (including external debt of state-owned enterprises, guarantees, and called guarantees), additional details on debt holders, and improved analytical components.
- Cameroon and Senegal increased their debt coverage in a recent Debt Sustainability Analysis prepared under the joint Bank-Fund Debt Sustainability Framework.
- In fiscal year 2019, the Bank helped the Ministry of Finance of Togo design the country’s first public debt portal, consolidating in one website all of Togo’s debt-related information—including debt statistics, debt-related documents and legislation, and an issuance calendar. The portal resides on the website of the Ministry of Finance.