The World Bank has issued a strong call for sweeping reforms in debt reporting and transparency among developing countries and their creditors, warning that hidden liabilities and complex borrowing arrangements are fuelling financial instability.
In a report released on Friday, the Bank urged what it called “radical debt transparency” to help avert future debt crises, especially as many low- and middle-income countries grapple with rising borrowing costs and increasingly opaque loan arrangements.
“When hidden debt surfaces, financing dries up and terms worsen,” said Axel van Trotsenburg, the Bank’s Senior Managing Director. “Radical debt transparency, which makes timely and reliable information accessible, is fundamental to break the cycle.”
The Bank is pushing for legal and regulatory reforms that would require countries to disclose new loan contracts, publish more granular data, and undergo regular audits. It is also calling on lenders to release full details of their loan and guarantee portfolios and to disclose the terms of any debt restructuring deals.
Though the percentage of low-income countries reporting some debt data has improved — rising from under 60% in 2020 to more than 75% today — only 25% disclose information at the loan level, the report noted.
The Bank’s warning comes amid a growing trend of “off-budget” and “off-screen” financing by developing nations. Countries like Senegal, Cameroon, and Gabon have engaged in complex deals that are difficult to track, while Angola recently paid a $200 million margin call after a plunge in bond prices. Nigeria also revealed in early 2023 that billions of US dollars in foreign exchange reserves were tied up in complicated contracts made under its former central bank leadership.
In addition to legal reforms, the World Bank is advocating for better tools for international financial institutions to detect debt misreporting early.
As countries increasingly turn to central bank swaps, collateralised loans, and private placements in response to market volatility, the Bank says only full loan-by-loan disclosure will give the global community a true picture of public debt risks.
“Only with broader loan coverage and deeper disclosures can we fully assess public debt exposure and support sustainable development,” the report concluded.
Melissa Enoch
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