By Alissa Ashcroft, Karla Vasquez, Rhoda Weeks-Brown (International Monetary Fund )
If efforts to address record global public debt are to leave no stone unturned, then weak disclosure laws warrant deep scrutiny. Hidden debt is borrowing for which a government is liable, but which is not disclosed to its citizens or to other creditors. And while this debt—by its nature—is often kept off the official government balance-sheet, it is very real, reaching $1 trillion globally by some estimates.
While these undisclosed obligations are not large when compared to global public debt topping $91 trillion, they pose a growing threat to low-income countries, already highly in debt with annual refinancing needs that have tripled in recent years. The problem is even more pressing amid higher interest rates and weaker economic growth. Accountability, too, is imperiled without accurate information about the extent of borrowing, which heightens the risk of corruption.
These potentially dire consequences can be avoided by strengthening domestic legal frameworks. Our new paper, The Legal Foundations of Public Debt Transparency: Aligning the Law with Good Practices, presents findings from a survey of 60 countries that examined vulnerabilities and loopholes in national laws that hinder transparency.
Building on a July 2023 paper, our new research shows that fewer than half the countries surveyed have laws that require debt management and fiscal reports, while less than a quarter require disclosure of loan-level information—key legal features for facilitating transparency. We also identify four noteworthy vulnerabilities in domestic laws that enable debt to be hidden: a narrow definition of public debt, inadequate legal requirements for disclosure, confidentiality clauses in public debt contracts, and ineffective oversight.
