## ppea2020005 - EXECUTIVE SUMMARY

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### Rising debt vulnerabilities and need for transparency
- Finding: Increasing public debt vulnerabilities in low-income developing countries (LIDCs) have heightened the need for fuller and more transparent accounting of public sector debt (PSD).
- Finding: Twenty-five out of fifty-seven LIDCs (i.e., forty-four percent) are assessed at high risk of debt distress or already in debt distress as at end-2018.
- Finding: Debt reporting shortcomings have led to “debt surprises,” including the discovery of “hidden” debts and increased use of complex debt instruments.
- Policy implication: Public debt transparency is a key prerequisite for effective risk assessment and sustainable borrowing and lending practices, and is included as a pillar of the joint Bank-Fund multipronged approach to reducing emerging debt vulnerabilities.

### International statistical framework and valuation
- Finding: The Public Sector Debt Statistics: Guide for Compilers and Users (PSDS Guide) provides clear definitions and statistical treatment of all debt-related arrangements including complex debt instruments; it is fully harmonized with the 2008SNA and GFSM 2014.
- Finding: Total debt consists of all liabilities that are debt instruments; the note focuses on gross debt only.
- Definition: A debt instrument is a financial claim that requires payment of interest and/or principal by the debtor to the creditor at a future date, or dates.
- Guidance:
  - Debt liabilities should be recorded when goods or assets change ownership, services are rendered, or funds are made available; commitments to provide funds in the future do not establish debt liabilities.
  - Contingent liabilities are excluded from debt liabilities but should be reported as memorandum items by the guarantor.
- Public sector coverage: PSDS should cover the entire public sector (general government; public nonfinancial corporations; public financial corporations including the central bank).
- Instruments to be covered: SDRs; currency and deposits; debt securities; loans; insurance, pension, and standardized guarantee schemes (IPSGS); and other accounts payable.
- Valuation methods:
  - Debt instruments should be valued on the reference date at nominal value (including accrued interest); traded debt securities should also be valued at market value when possible.
  - Accrual recording is recommended for flows and stock positions.

### LIC-DSF alignment and specific treatment for DSAs
- Finding: Debt data requirements for the Low-Income Countries Debt Sustainability Framework (LIC-DSF) are closely aligned with the PSDS statistical methodology but include significant differences to facilitate identification and assessment of risks.
- Objective: The LIC-DSF is expected to be based on near-complete coverage of public and publicly guaranteed (PPG) debt of the public sector to ensure comparable risk assessments and to avoid underestimating government debt risks.
- Tools: Policy engagements around DSAs, and tools and stress tests embedded in the LIC-DSF, help compensate for potential gaps in debt reporting.
- Key methodological differences (selected):
  - Coverage: LIC-DSF includes private sector debt guaranteed by the public sector in the public sector debt stock (whereas PSDS treats it as contingent liabilities).
  - SDRs: LIC-DSF excludes SDR allocations (PSDS includes SDRs).
  - Valuation: PSDS uses nominal value (and market value for traded securities when available); LIC-DSF uses face value.
  - External debt definition: PSDS by creditor residency and currency; LIC-DSF by creditor residency (foreign-currency can be a proxy where detailed info is lacking).
  - Institutional coverage: LIC-DSF excludes public financial corporations but includes the central bank when it borrows on the government’s behalf; PSDS covers public financial corporations.

### Current reporting gaps and data dissemination
- Finding: Debt data reporting to the Quarterly PSDS database is limited to less than one third of LIDCs (17 countries).
- Finding: There are considerable differences across countries in national debt definitions and in national reporting systems.
- Finding: Weaknesses in compilation and reporting stem from capacity constraints, weak legal and institutional frameworks, and unclear definitions of public debt under national laws.
- Finding: Debt reporting can suffer from inconsistencies across data sources and systems.
- Reporting burdens and patterns:
  - The IMF/World Bank QPSDS and QEDS require countries to report over 560 series of data on a quarterly basis (minimum requirements focus on a narrow set of data).
  - Debt statistics in LIDCs mostly refer to the narrowest coverage (loans and securities), and often guarantees. Only 8 percent of LIDCs partially cover other accounts payable.
  - IPSGS are the least reported instrument across countries and do not enter debt definitions in most national legislations.
  - Contingent liabilities are rarely monitored or quantified.
  - Most LIDCs record debt at face value only; nominal and face value definitions tend to be used interchangeably.
  - Two thirds of LIDCs still use a cash basis of accounting; this can lead to accounts payable/arrears discovered only when payment is requested or inaccurate valuation of securities issued below/above par.

### Reporting systems and international databases
- Main international databases (IMF and World Bank): Quarterly Public Sector Debt Statistics (QPSDS), Quarterly External Debt Statistics (QEDS), Government Finance Statistics (GFS, annual), and the Debtor Reporting System (DRS).
- Database characteristics:
  - QPSDS: Designed to collect the most comprehensive, detailed, and internationally comparable public sector debt data, covering outstanding external and domestic debt of main public sector subsectors with breakdowns by maturity, instrument type, currency, and creditor residency.
  - QEDS: Provides external debt statistics for general government and the central bank as part of total external debt; contains gross external debt by residency-defined sector and by instrument.
  - GFS: Annual balance sheet data providing full balance sheet data for general government and its subsectors, covering nonfinancial assets, financial assets and liabilities with detailed instrument breakdowns.
  - DRS: World Bank’s DRS is the most comprehensive database on LIDCs’ external debt, collecting loan-by-loan information on PPG debt; mandatory only for active and potential World Bank borrowers. DRS contains granular information including debt service schedules, concessionality, maturity, grace period, and interest; the DRS includes data on SOEs’ debt in 41 countries.
- Coverage and reporting status highlights:
  - All but two LIDCs (out of 59 countries) have reported loan-by-loan debt information to DRS, of which 53 countries have reported through 2018.
  - Under DRS, around 85 percent of countries have reported external debt contracted by their development banks and/or SOEs.
  - Coverage of QPSDS is limited: less than one third of LIDCs (17 countries) have reported in the past and only 10 countries through 2019Q3.
  - As of end-December, 56 countries eligible to use the revised LIC-DSF have prepared a DSA.
  - Guarantees are now included in over 90 percent of the LIC DSAs.
  - The number of countries reporting state/local government and SOEs’ debt has increased over the last two years.
  - Around 50 LICs have conducted a DSA each year during the past 5 years.

### Factors limiting reporting by LIDCs
- Identified constraints:
  - Capacity constraints in statistical offices and debt management units; World Bank DeMPA results since 2015 suggest that less than 50 percent of the LIDCs meet minimum requirements in staff capacity and HR management.
  - Weak legal and institutional frameworks for debt recording and reporting; DeMPA found that only half of a sample of seventeen LICs and LMICs between 2015 and 2017 “have legal frameworks that clearly define the delegation of authority to borrow and undertake debt management activities including the issuance of guarantees, all on behalf of the central government.”
  - Unclear national definitions of public debt and inconsistent sector coverage.
  - Complex and increasingly diverse debt instruments (e.g., collateralized arrangements, PPPs, commodity-backed transactions) that require clearer statistical treatment.
  - Governance weaknesses including weak incentives for senior management, limited public scrutiny, limited integration with other PFM systems, and rare audits of debt management operations.
  - Legal capacity to evaluate loan contracts is sometimes limited.

### Priorities and policy recommendations
- Capacity development and institutional reforms:
  - Strengthen capacity for debt data recording and reporting to produce better debt reports.
  - Overcome impediments to statistical reporting through targeted technical assistance.
  - Prioritize capacity development in country capacity development strategies.
  - Encourage debt managers in LIDCs to take the newly-launched IMF online course on PSDS and other capacity development activities.
- Data dissemination and transparency:
  - Encourage LIDCs to make more comprehensive and timely debt data publicly available in their national summary data page and through international financial institutions (IFIs).
  - Focus on improving reporting to the Quarterly PSDS database.
  - Encourage reporting of additional granular information (e.g., collateralization features of loans and domestic debt) through the World Bank’s Debtor Reporting System (DRS) loan-by-loan debt reporting.
  - Promote use of data structure definitions, modern IT tools for data dissemination, a common reporting platform, sufficient metadata, and disciplined timetables.
- IFI support and tools:
  - The World Bank and the IMF should provide required support for capacity development (example actions mentioned: the newly-introduced IMF online course on PSDS and scaled-up technical assistance on debt reporting).
  - Enhance QPSDS coverage (country, sector, and instrument), countries’ compliance, and data validation through intensive technical assistance.
  - Enhance the World Bank’s DRS to capture more granular details on terms and conditions of loans, including collateralization features and domestic debt.
  - Reduce reporting burden by harmonizing debt definitions and reporting templates used by IFIs and promoting a single reporting channel that sources multiple databases.
  - IMF and the World Bank will continue to collaborate with debt software providers (COMSEC and UNCTAD) to encourage harmonization.
- Analytical mitigation:
  - Use LIC-DSF debt coverage assessments and stress tests to compensate for limited debt reporting where necessary.
  - Continued review and support of debt data reporting in DSAs; further guidance may be needed on treating complex debt arrangements.
  - LIC DSF write-ups should include full descriptions of data used and can be posted on IMF-World Bank DSF websites to increase visibility. Disclosure of coverage of public sector and debt instruments needs strengthening under the LIC DSF.

### PPPs and other complex debt-creating arrangements
- PPP statistical treatment:
  - PPPs are long-term contracts; statistical treatment depends on economic ownership (not legal ownership).
  - If the government is economic owner and makes no initial payment, a transaction must be imputed to cover acquisition of the asset and a loan should be imputed and recorded; subsequent payments can be partitioned between loan repayment and service payments.
  - If the private partner is economic owner, associated acquisition debt is attributed to the private partner.
  - Government guarantees for payments under a Power Purchase Agreement (PPA) do not constitute debt until called; in LIC DSF they are evaluated as contingent liabilities in the stress test.
  - Under the LIC DSF contingent liabilities stress test: generally, a default shock triggers 35 percent of the country’s PPP capital stock when the PPP stock is larger than 3 percent of GDP.
- Collateral and collateral-like debt:
  - Collateralized debt obligations or asset-backed securities issued by a public sector unit constitute public sector debt (PSD).
  - Indirect collateralized arrangements via SPVs should be included in public debt in DSAs if the government can become liable for the SPV’s obligations; SPV arrangements should be assessed case-by-case per GFSM2014 classification guidance.
  - Commodity-backed and commodity pre-purchase agreements that create repayment obligations over an extended period need to be reported as debt.
- Pension entitlements:
  - Pension entitlements of public sector employees with employment-related pension systems constitute debt of the public sector.
  - Defined-benefit schemes: the present value of any unfunded obligations is a debt liability.
  - Defined-contribution schemes: benefits depend on fund performance and do not involve a debt liability.
  - Unfunded liabilities of social security funds can be included in the LIC DSF.
- Trade credits:
  - Trade credits used to meet long-term investment needs should be recorded as debt.
  - “Self-liquidating” trade credits for immediate onward sale can be excluded from LIC DSF.
  - Trade credit with maturity longer than one year should be included in the DSA.
  - Assessment should consider SOE financial soundness and the potential substitution of short-term facilities for longer-term facilities.

### Reporting status: selected country entries and databases
- QPSDS and other reporting time spans (selected entries):
  - Afghanistan: Data reported 2017Q1–2019Q2; other spans: 2004–2006; 2006–2018
  - Bangladesh: Data reported 2009Q3–2019Q2; 2013Q3–2019Q2; 1972–2018; 2011Q1–2019Q2
  - Benin: Data reported 1970–2018; 2015Q1–2016Q3
  - Bhutan: Data reported 2003–2018; 1981–2018; 2012–2018
  - Burkina Faso: Data reported 2008Q1–2019Q2; 1970–2018; 2005–2017
  - ... (selected entries continue as in source listing; Annex Table 3 contains full reporting status entries and coverage notes)
- Annex databases (selected metadata):
  - Public Sector Balance Sheet (PSBS) — IMF (Fiscal Affairs Department): Coverage CG, GG, NFC, FC, PS; Frequency Annual; Latest available data: 2016.
  - Loan-by-loan data — Debtor Reporting System (DRS), World Bank: Coverage CG, GG, NFC, FC, PS; Frequency Quarterly reporting of new commitments and Annual reporting for individual transactions; Latest available data: 2019Q3.
  - Annex Table 2 and Annex Table 3 provide coding conventions (e.g., D1, D2, D3, D5), sector codes (CG, GG, PS), and instrument codes (DS, Ln, TC&A, Other).

*Source: PUBLIC SECTOR DEBT DEFINITIONS AND REPORTING IN LOW-INCOME DEVELOPING COUNTRIES (excerpt).*

### EXECUTIVE SUMMARY

### ppea2020005 - EXECUTIVE SUMMARY

### Rising debt vulnerabilities and need for transparency
- Finding: Increasing public debt vulnerabilities in low-income developing countries (LIDCs) have heightened the need for fuller and more transparent accounting of public sector debt (PSD).
- Finding: Twenty-five out of fifty-seven LIDCs (i.e., forty-four percent) are assessed at high risk of debt distress or already in debt distress as at end-2018.
- Finding: Debt reporting shortcomings have led to “debt surprises,” including the discovery of “hidden” debts and increased use of complex debt instruments.
- Policy implication: Public debt transparency is a key prerequisite for effective risk assessment and sustainable borrowing and lending practices, and is included as a pillar of the joint Bank-Fund multipronged approach to reducing emerging debt vulnerabilities.

### International statistical framework and valuation
- Finding: The Public Sector Debt Statistics: Guide for Compilers and Users (PSDS Guide) provides clear definitions and statistical treatment of all debt-related arrangements including complex debt instruments; it is fully harmonized with the 2008SNA and GFSM 2014.
- Finding: Total debt consists of all liabilities that are debt instruments; the note focuses on gross debt only.
- Definition: A debt instrument is a financial claim that requires payment of interest and/or principal by the debtor to the creditor at a future date, or dates.
- Guidance: Debt liabilities should be recorded when goods or assets change ownership, services are rendered, or funds are made available; commitments to provide funds in the future do not establish debt liabilities.
- Guidance: Contingent liabilities are excluded from debt liabilities but should be reported as memorandum items by the guarantor.
- Public sector coverage: PSDS should cover the entire public sector (general government; public nonfinancial corporations; public financial corporations including the central bank).
- Instruments to be covered: SDRs; currency and deposits; debt securities; loans; insurance, pension, and standardized guarantee schemes (IPSGS); and other accounts payable.
- Valuation methods: Debt instruments should be valued on the reference date at nominal value (including accrued interest); traded debt securities should also be valued at market value when possible. Accrual recording is recommended for flows and stock positions.

### LIC-DSF alignment and specific treatment for DSAs
- Finding: Debt data requirements for the Low-Income Countries Debt Sustainability Framework (LIC-DSF) are closely aligned with the PSDS statistical methodology but include significant differences to facilitate identification and assessment of risks.
- Objective: The LIC-DSF is expected to be based on near-complete coverage of public and publicly guaranteed (PPG) debt of the public sector to ensure comparable risk assessments and to avoid underestimating government debt risks.
- Tools: Policy engagements around DSAs, and tools and stress tests embedded in the LIC-DSF, help compensate for potential gaps in debt reporting.

### Current reporting gaps and data dissemination
- Finding: Debt data reporting to the Quarterly PSDS database is limited to less than one third of LIDCs (17 countries).
- Finding: There are considerable differences across countries in national debt definitions and in national reporting systems.
- Finding: Weaknesses in compilation and reporting stem from capacity constraints, weak legal and institutional frameworks, and unclear definitions of public debt under national laws.
- Finding: Debt reporting can suffer from inconsistencies across data sources and systems.

### Factors limiting reporting by LIDCs
- Identified constraints:
  - Capacity constraints in statistical offices and debt management units.
  - Weak legal and institutional frameworks for debt recording and reporting.
  - Unclear national definitions of public debt and inconsistent sector coverage.
  - Complex and increasingly diverse debt instruments that require clearer statistical treatment.

### Priorities and policy recommendations
- Capacity development and institutional reforms:
  - Strengthen capacity for debt data recording and reporting to produce better debt reports.
  - Overcome impediments to statistical reporting through targeted technical assistance.
- Data dissemination and transparency:
  - Encourage LIDCs to make more comprehensive and timely debt data publicly available in their national summary data page and through international financial institutions (IFIs).
  - Focus on improving reporting to the Quarterly PSDS database.
  - Encourage reporting of additional granular information (e.g., collateralization features of loans and domestic debt) through the World Bank’s Debtor Reporting System (DRS) loan-by-loan debt reporting.
- IFI support and tools:
  - The World Bank and the IMF should provide required support for capacity development (example actions mentioned: the newly-introduced IMF online course on PSDS and scaled-up technical assistance on debt reporting).
  - These steps would complement ongoing efforts to expand debt coverage in DSAs.
- Analytical mitigation:
  - Use LIC-DSF debt coverage assessments and stress tests to compensate for limited debt reporting where necessary.

*Prepared by an IMF team led by Dalia Hakura (SPR) and Andrew Kitili (STA) under the guidance of Mark Flanagan (SPR), with inputs from Charlotte Lundgren and Keiichi Nakatani (SPR) and Noriaki Kinoshita (STA); and by a World Bank team led by Diego Rivetti (EMFMD) under the guidance of Doerte Doemeland (EMFMD), with inputs from Evis Rucaj and Rubena Sukaj (DEC).*

### 17.      All non-financial state-owned enterprises (SOEs) that create significant fiscal risks

### 17.      All non-financial state-owned enterprises (SOEs) that create significant fiscal risks

### Inclusion and exclusion of entities
- All non-financial state-owned enterprises (SOEs) that create significant fiscal risks should be included in LIC DSFs.
- SOEs are defined as public enterprises that are majority-owned by the government, but can be excluded if they meet criteria in Appendix III of the LIC DSF guidance note. These criteria include:
  - ability to publish annual reports including financial statements,
  - undergo regular independent audits,
  - have independent management,
  - borrow without a guarantee from the government,
  - have no involvement in uncompensated quasi-fiscal activities,
  - a track record of positive operating balances.
- Public financial corporations are excluded in the LIC DSF because netting assets and liabilities between the government and financial corporations would mask the true extent of government debt vulnerabilities (e.g., when government debt is largely held by public financial corporations including the central bank).
- The LIC DSF offers options to capture risks from public financial corporations in the contingent liability stress test.
- Central bank debt is included in the DSF if it is contracted on behalf of the government. In contrast, central bank debt issuances or foreign exchange swaps for monetary policy or reserves management are excluded in the DSF.
- Borrowing from the IMF which is a member’s obligation should also be considered the government’s debt.

### Key differences between PSDS and LIC-DSF (coverage and valuation)
- Overall purpose:
  - PSDS: Compile and disseminate internationally-comparable debt statistics.
  - LIC-DSF: Support LICs’ efforts to achieve their development goals while minimizing the risk of debt distress.
- Coverage of debt instruments:
  - PSDS: Public debt instruments as defined in SNA/GFS: SDRs; currency and deposits; debt securities; loans; insurance, pension, and standardized guarantee schemes; and other accounts payable.
  - LIC-DSF: Same public debt instruments minus SDR allocations as IMF members are generally under no obligation to reconstitute these. Private sector debt guaranteed by the public sector (including provided for borrowing by state-owned enterprises) is included in the public sector debt stock in LIC-DSF (whereas PSDS treats it as contingent liabilities, not part of public sector debt).
- Other contingent liabilities:
  - PSDS: Contingent liabilities are not part of public sector debt and can be reported using a standard table.
  - LIC-DSF: Could include long-term obligations of the general government (e.g., unfunded liabilities of social security funds); known and anticipated recognition of contingent liabilities; where recognition is less certain, stress tests should assess potential impact.
- Institutional coverage:
  - PSDS: External debt of the public sector including central, state, and local governments, social security funds, public financial and non-financial corporations.
  - LIC-DSF: Near-complete coverage in line with 2008SNA/GFSM 2014 and PSDS Guide, but excluding public financial corporations and including the central bank (when it borrows on the government’s behalf).
- Gross vs. net debt:
  - PSDS: Both gross and net debt can be reported.
  - LIC-DSF: Gross debt.
- Valuation method:
  - PSDS: Nominal value, and for traded debt securities at market value as well (if market value not available nominal or face value could be used as proxy).
  - LIC-DSF: Face value.
- Definition of external debt:
  - PSDS: Both by creditor residency and currency of denomination.
  - LIC-DSF: By creditor residency. In cases lacking detailed information, debt denominated in foreign currency can be used as a proxy.

### Debt instruments, treatment, and valuation in LIC-DSF
- The LIC DSF includes loans and debt securities (D1), as well as debt arrears and government guarantees in the public debt stock.
- LIC DSF can also cover other liabilities, including:
  - unfunded obligations of social security systems;
  - ongoing restructurings of financial institutions;
  - demand or other guarantees in PPPs that have been or are poised to be triggered;
  - verified and recognized obligations arising from a financial claim (e.g., ICSID) arbitration awards;
  - arrears owed to suppliers.
- Any omissions from public debt are picked up in the contingent liabilities stress test.
- Limited cases where debt should be excluded or adjusted in the DSA:
  - When validity or amount of a claim is in dispute, the entire amount in dispute should be treated as a contingent liability in the LIC DSF stress tests.
  - Claims eligible for internationally-agreed debt relief (e.g., post-HIPC completion point countries) should be excluded from the DSA.
  - External arrears would be adjusted in line with restructuring agreements (e.g., Paris Club cancellations not yet legally-binding).
- Valuation method: Debt is valued at face value in LIC-DSF. Data provided by national debt offices authorities are the primary source of debt input in the DSA.

### Reporting systems and international databases
- LIDCs report debt data to four main statistical databases, hosted by the IMF and World Bank, closely aligned with international definitions: Quarterly Public Sector Debt Statistics (QPSDS), Quarterly External Debt Statistics (QEDS), Government Finance Statistics (GFS, annual), and the Debtor Reporting System (DRS).
- None of the databases separately collects contingent liabilities and, except for the DRS, publicly guaranteed debt, as well as the terms and conditions of contracts.
- Reporting to the databases (except DRS) is voluntary.
- QPSDS:
  - Designed to collect the most comprehensive, detailed, and internationally comparable public sector debt data.
  - Covers outstanding external and domestic debt of main public sector subsectors with breakdowns by maturity, instrument type, currency, and creditor residency.
- QEDS:
  - Provides external debt statistics for general government and the central bank as part of total external debt.
  - Contains gross external debt by residency-defined sector and by instrument; public corporations are included in “deposit-taking corporations, other than the central bank” and “other sectors.”
- GFS:
  - Annual balance sheet data in IMF’s GFS database provide full balance sheet data for general government and its subsectors, covering nonfinancial assets, financial assets and liabilities with detailed instrument breakdowns, allowing stock-flow consistency checks and contingent liabilities analysis where data exist.
- DRS:
  - World Bank’s DRS is the most comprehensive database on LIDCs’ external debt, collecting loan-by-loan information on PPG debt; reporting to the DRS is mandatory only for active and potential World Bank borrowers.
  - DRS contains granular information including debt service schedules, concessionality, maturity, grace period, and interest; the DRS includes data on SOEs’ debt in 41 countries.
  - DRS data are validated with market data, creditor data, BOP/IIP, QEDS, and used in debt analytical exercises like MTDS or DSA.

### Reporting burdens, coverage, and dissemination
- The IMF/World Bank QPSDS and QEDS require countries to report over 560 series of data on a quarterly basis (minimum requirements focus on a narrow set of data).
- Under the IMF’s data dissemination standards, LIDCs are encouraged to compile and publish timely, comprehensive statistics; the enhanced General Data Dissemination System (e-GDDS) includes central government gross debt (to be disseminated quarterly within two quarters).
- National reporting systems often have narrower debt coverage than international definitions due to:
  - national/regional definition deviations, or
  - institutional frameworks lacking explicit mandate for debt offices/statistics departments.
- Debt statistics in LIDCs mostly refer to the narrowest coverage (loans and securities), and often guarantees. Only 8 percent of LIDCs partially cover other accounts payable.
- IPSGS are the least reported instrument across countries and do not enter debt definitions in most national legislations.
- Contingent liabilities are rarely monitored or quantified.
- Most LIDCs record debt at face value only; nominal and face value definitions tend to be used interchangeably. Debt recording systems (e.g., COMSEC, DMFAS) commonly define debt at face value and do not compute market value.
- Two thirds of LIDCs still use a cash basis of accounting; this can lead to accounts payable/arrears discovered only when payment is requested or inaccurate valuation of securities issued below/above par.

### Reporting to international databases and LIC DSAs
- The DRS has the broadest country and public sector coverage for LIDCs and the most granular external public sector debt information.
- All but two LIDCs (out of 59 countries) have reported loan-by-loan debt information to DRS, of which 53 countries have reported through 2018.
- Under DRS, around 85 percent of countries have reported external debt contracted by their development banks and/or SOEs.
- Coverage of QPSDS is limited: less than one third of LIDCs (17 countries) have reported in the past and only 10 countries through 2019Q3.
- As of end-December, 56 countries eligible to use the revised LIC-DSF have prepared a DSA.
- Guarantees are now included in over 90 percent of the LIC DSAs.
- The number of countries reporting state/local government and SOEs’ debt has increased over the last two years.
- Around 50 LICs have conducted a DSA each year during the past 5 years.
- It is noted that in many LIDCs state/local governments and SOEs cannot borrow independently without a government guarantee under their relevant laws.

### Statistical treatment of complex debt-creating arrangements
- Recent off-balance sheet debt-creating arrangements have given rise to debt transparency issues. Care is needed accounting for them in official statistics and LIC DSFs.
- This section discusses treatment of PPPs, collateral and collateral-like debt, debt obligations relating to pension entitlements, and trade credits.
- The LIC DSF contingent liabilities stress test is composed of shocks emanating from other elements of the general government, SOE debt (guaranteed and not guaranteed), PPPs, and financial market vulnerabilities not already captured in headline debt indicators.

*Source: PUBLIC SECTOR DEBT DEFINITIONS AND REPORTING IN LOW-INCOME DEVELOPING COUNTRIES (excerpt).*

### 38.      According to the international standards, PPP contracts could give rise to debt

### ppea2020005 - 38.      According to the international standards, PPP contracts could give rise to debt

### PPP Contracts and Debt Accounting
- PPPs are long-term contracts where one entity acquires or builds an asset, operates it for a period, then hands it over to a second entity (e.g., a general government or public sector unit).
- Statistical treatment depends on economic ownership (not legal ownership): the economic owner is entitled to claim benefits from use of the asset by virtue of accepting associated risks.
- If the government is assessed as the economic owner during the contract period but makes no initial payment for asset purchase at the beginning of the contract period:
  - A transaction must be imputed to cover acquisition of the assets.
  - A loan should be imputed and recorded.
  - Subsequent actual government payments to the private partner could be partitioned so that a portion of each payment represents repayment of the loan.
- If the private partner is assessed as the economic owner during the contract period, any debt associated with acquisition of the asset should be attributed to the private partner.
- Government guarantees provided for payments under a Power Purchase Agreement (PPA) in the context of a PPP do not constitute debt and would not be included in the public debt stock until the IPP calls on the guarantee.
  - In the LIC DSF, guarantees should be evaluated as potential contingent liabilities in the stress test.
- Under the LIC DSF contingent liabilities stress test: generally, a default shock triggers 35 percent of the country’s PPP capital stock (proxying for the present value of direct and potential future fiscal costs from PPP distress and/or cancellations) when the PPP stock is larger than 3 percent of GDP.

### Collateral and Collateral-like Debt
- Collateralized debt obligations or asset-backed securities issued by a public sector unit constitute public sector debt (PSD).
- Indirect collateralized arrangements (e.g., collateral assigned to a special purpose vehicle (SPV) which then grants it to creditors and the SPV services the debt) should be included in public debt in DSAs if the government can become liable for the SPV’s obligations even if the SPV is separate and independent.
  - SPV arrangements should be assessed case-by-case; legal documentation may grant investors claims on government resources in the event of default.
  - A determination should be made, based on the GFSM2014, whether the SPV is truly independent or should be classified as part of general government.
- Commodity-backed arrangements that are not strict collateralized loans but are collateral-like (e.g., commodity barter transactions, pre-purchase agreements related to forward sales of commodities) need to be reported as debt because they can create an obligation for repayment over an extended period.

### Pension Entitlements
- Pension entitlements of public sector employees with employment-related pension systems constitute debt of the public sector.
- Pension entitlements are financial claims that existing and future pensioners hold against the government as an employer or a fund designated by the government to pay the pension earned.
- Treatment depends on scheme type:
  - Defined-benefit schemes: the present value of any unfunded obligations (future obligations that would exceed assets held by the pension fund) is considered a debt liability.
  - Defined-contribution schemes: benefits depend on financial performance of the pension fund; the market value of assets held by the pension fund means such schemes do not involve a debt liability.
- Unfunded liabilities of social security funds, when not explicitly recognized as part of general government debt, can be included in the LIC DSF.

### Trade Credits
- Trade credits used to meet long-term investment needs should be recorded as debt.
- “Self-liquidating” trade credits where importers act only as intermediaries purchasing goods for immediate onward sale can be excluded from the LIC DSF.
- Trade credit with maturity longer than one year should be included in the DSA because:
  - Proceeds of sales might be used for different purposes than to repay the trade credit.
  - Currency mismatches might become an issue.
- The SOE’s financial soundness matters in assessing riskiness of trade credit; short-term facilities may substitute for longer-term facilities and require judgement about inclusion in analytical measures of debt.

### Factors Limiting Reporting of Debt Data by LIDCs
- Key impediments include capacity constraints, treatment of debt in legal frameworks and unclear definitions of public debt under national laws, and weak governance.
- Capacity constraints:
  - Government human resources and IT infrastructure are scarce in LIDCs, constraining collection, compilation, and dissemination of debt statistics.
  - World Bank DeMPA results since 2015 suggest that less than 50 percent of the LIDCs meet minimum requirements in staff capacity and HR management.
  - Capacity constraints are especially important for debt of public corporations, social security funds, extrabudgetary funds, and subnational governments.
  - Where debt management offices have limited capacity, data collection will be limited to central government.
  - Legal capacity to evaluate loan contracts is sometimes limited.
- Legal framework:
  - LIDCs often lack clearly-defined legal frameworks requiring compilation and reporting of debt statistics and delegation of responsibility to a specific agency with credible enforcement mechanisms.
  - DeMPA found that only half of a sample of seventeen LICs and LMICs between 2015 and 2017 “have legal frameworks that clearly define the delegation of authority to borrow and undertake debt management activities including the issuance of guarantees, all on behalf of the central government.”
  - Narrowly defined legislative coverage of public sector debt hampers compilers’ legal backing to collect debt statistics from broader public agencies.
- Governance:
  - Weak incentives for senior administrative and political management undermine debt recording, monitoring, and reporting.
  - Causes include lack of demand for reliable data, limited public scrutiny, limited integration with other PFM systems, and poor alignment between statistical reporting entities and government accountability structures.
  - Audits of debt management operations in LIDCs are rare.
  - Grey areas in debt definition and coverage can create incentives to keep fiscal risks off the government balance sheet (contingent liabilities), potentially producing a ‘PPP bias’.

### Priorities to Improve Public Debt Data Availability
- Strengthen the legal framework and institutional capacity to enhance debt reporting and debt transparency; prioritize capacity development in country capacity development strategies.
- Promote the use of standard definitions and concepts of PSD to enhance sector and debt instrument coverage; the PSDS Guide provides such a definition and informs the LIC-DSF.
  - Encourage debt managers in LIDCs to take the newly-launched IMF online course on PSDS and other capacity development activities.
- Enhance the QPSDS database, which can serve—together with DRS—as a global source of timely and comprehensive public debt data.
  - To serve this global purpose, QPSDS coverage (country, sector, and instrument), countries’ compliance, and data validation need improvement through intensive technical assistance.
  - Concerted and sustained efforts are needed from both the IMF/World Bank and reporting countries to enhance awareness, strengthen motivation for voluntary reporting, and provide capacity development support.
- Enhance the World Bank’s DRS to capture more granular details on terms and conditions of loans, including collateralization features and domestic debt, which would provide more detail for DSAs and address transparency issues such as risks from collateralized debt obligations.
  - This requires systematic collection of additional instrument-level information and capacity to assess statistical treatment and support data provision.
- Reduce the reporting burden by harmonizing debt definitions and reporting templates used by IFIs and promoting a single reporting channel that sources multiple databases.
  - Encourage LIDCs to use data structure definitions, modern IT tools for data dissemination, a common reporting platform, provision of sufficient metadata, and adherence to disciplined timetables.
  - The IMF and the World Bank will continue to collaborate with debt software providers (COMSEC and UNCTAD) to encourage harmonization.
- Continue to implement new LIC DSF requirements:
  - Write-ups should include full descriptions of data used and can be posted on IMF-World Bank DSF websites to increase visibility.
  - Disclosure of coverage of public sector and debt instruments needs strengthening under the LIC DSF.
  - Continued review and support of debt data reporting in DSAs is warranted; further guidance may be needed on treating complex debt arrangements.

*Source: PUBLIC SECTOR DEBT DEFINITIONS AND REPORTING IN LOW-INCOME DEVELOPING COUNTRIES, INTERNATIONAL MONETARY FUND*

### Annex Table 2. Public Sector Debt Data in the International Databases (concluded)

### Annex Table 2. Public Sector Debt Data in the International Databases (concluded)

### Public Sector Balance Sheet (PSBS) — IMF (Fiscal Affairs Department)
- Coverage: CG, GG, NFC, FC, PS
- Main purposes/collection mechanism:
  - Shows comprehensive estimates of public sector assets and liabilities that formed the basis for the analysis presented in the October 2018 edition of the Fiscal Monitor.
  - The database originally covered public sector balance sheets for a broad sample of 31 countries, covering 61 percent of the global economy.
  - Since October 2018, the database has been updated with PSBS data for another 7 countries and now covers 63 percent of the global economy.
  - The PSBS database is compiled on a best efforts basis, using the conceptual framework of the GFS Manual 2014.
  - Data for the central and general government generally replicate data reported by country authorities in the IMF’s Government Finance Statistics database.
  - Data for the central bank generally replicate data reported by country authorities in the IMF’s Monetary and Finance Statistics database.
  - Where these data fail to cover all categories of assets and liabilities, they are complemented by other data reported by statistical authorities at the national level, other international organizations, or staff estimates.
  - Data sources for public corporations are country specific and are captured in the country specific metadata documents.
- Frequency: Annual
- Latest available data: 2016

### Loan-by-loan data — Debtor Reporting System (DRS), World Bank
- Coverage: CG, GG, NFC, FC, PS
- Main purposes/collection mechanism:
  - Since 1951, World Bank Debtor Reporting System requirements were instituted (as per OP 14.10); any country (Government Authority) that borrows from IBRD or IDA is required to provide comprehensive information on its external debt obligations until all obligations to IBRD and IDA are expunged.
  - Rationale: to enable the World Bank to assure itself of the debt servicing capacity of the countries to which it lent and to assess creditworthiness and debt servicing capacity of Bank borrowers.
  - Reporting requirements demand quarterly reporting of new borrowing commitments of public and publicly guaranteed debt, an annual loan-by-loan statement of stocks and flows, and an aggregate reporting of stocks and flows on private non-guaranteed debt.
- Frequency:
  - Quarterly reporting of the new commitment
  - Annual reporting for individual transactions of the debt instruments
- Latest available data: 2019Q3

### Annex Table 3 — Reporting Status of Public Sector Debt by LIDCs (selected entries and coverage details)
- Table includes country-level reporting status entries indicating "Data reported" and associated time spans and coverage notes. Selected country entries and exact reported time spans from the table:
  - Afghanistan: Data reported 2017Q1–2019Q2; other spans: 2004–2006; 2006–2018
  - Bangladesh: Data reported 2009Q3–2019Q2; 2013Q3–2019Q2; 1972–2018; 2011Q1–2019Q2
  - Benin: Data reported 1970–2018; 2015Q1–2016Q3
  - Bhutan: Data reported 2003–2018; 1981–2018; 2012–2018
  - Burkina Faso: Data reported 2008Q1–2019Q2; 1970–2018; 2005–2017
  - Burundi: Data reported 1970–2018
  - Cambodia: Data reported 2008Q4–2019Q2; 1981–2018; 1995–2016
  - Cameroon: Data reported 2007Q4–2019Q2; 1970–2018; 2017Q1–2019Q2
  - Central African Republic: Data reported 2009Q2–2010Q3; 1970–2018
  - Chad: Data reported 1970–2015
  - Comoros: Data reported 1970–2018
  - Congo, DR: Data reported 2013Q3–2019Q2; 1972–1989; 1970–2018
  - Congo, Republic of: Data reported 2009–2010; 1970–2018
  - Cote d'Ivoire: Data reported 2017Q1–2019Q2; 2010Q2–2019Q2; 1970–2018; 2006–2015
  - Djibouti: Data reported 2017Q4–2019Q2; 1970–2018
  - Eritrea: Data reported 1994–2009
  - Ethiopia: Data reported 2007Q1–2019Q2; 2014–2018; 1970–2018
  - Gambia, The: Data reported 2005–2009; 1970–2018
  - Ghana: Data reported 2006Q3–2011Q3; 1970–2018; 2018M1–2019M3
  - Guinea: Data reported 1970–2018
  - Guinea-Bissau: Data reported 1975–2018
  - Haiti: Data reported 1970–2018
  - Honduras: Data reported 2000Q1–2019Q2; 2002Q4–2019Q2; 1970–2018
  - Kenya: Data reported 2009Q2–2017Q4; 2008Q2–2019Q2; 2009–2011; 1970–2018; 2017Q3–2018Q3
  - Kiribati: Data reported 2013Q1–2014Q4
  - Kyrgyz Republic: Data reported 2014Q1–2019Q1; 2003Q3–2019Q2; 2014–2018; 1970–2018
  - Lao PDR: Data reported 1970–2018
  - Lesotho: Data reported 1970–2018; 2004–2015
  - Liberia: Data reported 2011Q4–2016Q4; 2011–2012; 1970–2018
  - Madagascar: Data reported 2011Q1–2019Q2; 2007Q1–2019Q1; 1972–1974; 1970–2018
  - Malawi: Data reported 2011Q1–2014Q3; 2009–2018; 1970–2018; 2014Q3–2016Q2
  - Mali: Data reported 1980–1986; 1970–2018
  - Mauritania: Data reported 1970–2018
  - Moldova: Data reported 2009Q3–2019Q2; 2004Q1–2019Q2; 2011–2018; 1992–2018
  - Mozambique: Data reported 2016–2018; 1984–2018
  - Myanmar: Data reported 1970–2018
  - Nepal: Data reported 2009Q1–2016Q4; 2018Q3–2019Q2; 2009Q2–2019Q2; 1974–1989; 1970–2018; 2013Q3–2016Q4
  - Nicaragua: Data reported 2010Q1–2019Q1; 2007Q3–2019Q2; 1970–2018
  - Niger: Data reported 1970–2018
  - Nigeria: Data reported 2009Q4–2019Q1; 2007Q4–2015Q4; 1970–2018; 2013Q4–2015Q4
  - Papua New Guinea: Data reported 2011Q4–2019Q2; 2014–2018; 1970–2018
  - Rwanda: Data reported 2017Q1–2019Q2; 2006Q3–2019Q2; 1977–1989; 1970–2018; 2015Q4–2019Q2
  - Sao Tome & Principe: Data reported 1970–2018
  - Senegal: Data reported 2014Q1–2019Q2; 1970–2018; 2017Q2–2019Q3
  - Sierra Leone: Data reported 2007Q4–2018Q3; 1970–2018
  - Solomon Islands: Data reported 2011Q1–2019Q2; 2012–2018; 1978–2018
  - Somalia: Data reported 1970–1992
  - South Sudan: Data reported (no years listed)
  - Sudan: Data reported 1970–2018
  - Tajikistan: Data reported 2008Q1–2019Q2; 1999–2018
  - Tanzania: Data reported 2010Q2–2014Q2; 2010Q1–2013Q2; 1970–2015; 2014Q1–2015Q4
  - Timor-Leste: Data reported 2012–2018
  - Togo: Data reported 2011Q1–2011Q4; 1983–1986; 1970–2018; 2008–2016
  - Uganda: Data reported 2009Q3–2019Q2; 2006Q3–2019Q2; 2018–2018; 1970–2018; 2015Q3–2019Q1
  - Uzbekistan: Data reported 1991–2018; 2017Q1–2019Q2
  - Yemen, Republic of: Data reported 2006Q3–2018Q4; 1970–2018
  - Zambia: Data reported 2011Q1–2019Q1; 2010–2018; 1970–2018; 2009–2016
  - Zimbabwe: Data reported 1970–2018
  - Vietnam: Data reported 1981–2018
- Coverage notes and coding conventions from the table:
  - BCG: budgetary central government; CG: central government; GG: general government; PS: public sector; CB: central bank; SOEs: state-owned enterprises; Dev. Banks: official development banks.
  - D1: debt securities and loans; D2: D1 plus SDRs and currency and deposits; D3: D2 plus accounts payable; D5: D4 plus insurance, pension, and standardized guarantee schemes.
  - PSE: public sector external debt; PrSE: private sector external debt; SDR: special drawing rights; C&D: currency and deposits; DS: debt securities; Ln: loans; TC&A: trade credits and advances; Other: other debt liabilities; ADI: all debt instruments.
  - For DRS, debt data is reported on a loan-by-loan basis for all countries.

*Annex Table 2 and Annex Table 3 content as presented in the source PDF.*

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_Source: https://www.imf.org/-/media/files/publications/pp/2020/english/ppea2020005.pdf_