## ppea2023034 — INTRODUCTION (MAKING PUBLIC DEBT PUBLIC — ONGOING INITIATIVES AND REFORM OPTIONS) ## Source details **Canonical URL:** [ppea2023034 — INTRODUCTION (MAKING PUBLIC DEBT PUBLIC — ONGOING INITIATIVES AND REFORM OPTIONS)](https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023034.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2023/english/ppea2023034.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2023/english/ppea2023034.pdf.json) --- ### Case for enhancing public debt transparency - Public debt transparency is a key dimension of fiscal transparency and contributes to macroeconomic stability, growth, and faster resolution in debt restructurings (paras. 1–2). - Governance gaps, capacity limitations, and information-sharing weaknesses hinder public debt transparency; limited transparency often results from interplay of these factors and adverse incentives, particularly in developing countries (paras. 2–3). - Progress under the Joint IMF‑World Bank Multipronged Approach to Address Debt Vulnerabilities (MPA) since 2018, with additional reform areas identified: - (i) strengthening domestic legal frameworks for public debt; - (ii) standardizing clauses that promote transparency in public debt contracts; - (iii) frameworks for voluntary disclosure and reconciliation of loan-level information by borrowers and creditors; - (iv) introducing direct incentives from International Financial Institutions (IFIs) (para. 4). - IMF contributions feasible but would require significant additional resources, expanded capacity development (CD), promotion of standardized nondisclosure clause limits, tailored conditionality when critical to IMF‑supported programs, and provision of in‑depth public debt transparency assessments if requested (para. 5). ### Definition, scope, and disclosure needs - Definition: availability of timely, accurate, and sufficiently comprehensive information on public debt—and related procedures and policies—to stakeholders; dissemination should show contracted and outstanding stocks of public debt and public contingent liabilities, key financial and legal terms, creditor profile, and debt service payments (para. 7). - Coverage guidance (based on IMF Fiscal Transparency Code and Public Sector Debt Statistics Guide): - Broad perimeter: general government, all central bank liabilities (not just those contracted on behalf of the general government), and liabilities of all public corporations as part of public sector debt (para. 8). - Contingent liabilities: disclose explicit contingent liabilities such as government guaranteed and non‑guaranteed debt of public non‑financial corporations that are market producers (SOEs) and liabilities related to PPPs (para. 8). - Instruments: include all liabilities requiring future payments of interest and/or principal (loans, deposits, securities, suppliers’ credits, other accounts payable) (para. 8). - Forward‑looking transparency: projected public debt evolution from borrowing decisions, expected portfolio composition and risk indicators, and assumptions on new borrowings and financial terms (para. 9). - Granularity by audience: - Policymakers, creditors, analysts, IFIs: aggregate data with analytical breakdowns may suffice (para. 10). - General public, creditors, analysts, IFIs: individual instrument‑level information benefits accountability and risk analysis (para. 10). - In borrowing countries: officials, legislatures, and state audit institutions should have access to individual debt contracts; debt advisors in restructuring contexts require such access (para. 10). ### Why transparency matters — macro, market, and empirical evidence - Macro‑fiscal and market benefits: - Enables accurate debt sustainability assessment, comparability of public debt statistics, lowers average risk premia, supports stable access to financing, and facilitates orderly restructurings (para. 13). - Reduces creditor uncertainty about debt burdens and creditor seniority; identifies risks before they materialize and facilitates fair burden sharing in restructurings (para. 13). - Empirical evidence: - IMF research: increased fiscal and public debt transparency can meaningfully lower emerging markets’ bond spreads and increase foreign investors’ willingness to hold EM sovereign debt (Choi and Hashimoto, 2018; Kemoe and Zhan, 2018) (para. 14). - Gonzalez‑Garcia (2022): significant reduction in sovereign spreads following SDDS subscription or e‑GDDS dissemination (para. 14). ### Key observations on current disclosure practices and drivers of opacity - Rising public debt and complexity: - April 2023 WEO: public debt (domestic plus external) increased by about 30 percentage points globally since 2007 (para. 15). - World Bank IDS: stock of external public debt in nominal US dollar terms has at least doubled across EMDEs since 2010; shares held by commercial creditors and non‑Paris Club creditors increased (para. 15). - Complexity captured imperfectly: - Increased use of collateralized borrowing and collateral‑like features (escrow accounts, debt service reserve accounts, deposit accounts); Dealogic data show increased reliance in low‑ and lower‑middle income countries since 2010 (para. 16). - Commodity‑backed loans underreported: Mihalyi and others (2022) find only half of identified commodity‑backed loans in sub‑Saharan Africa were reported in the World Bank’s Debtor Reporting System (para. 16). - SOEs and PPPs: expanding coverage revealed sizable uncaptured public and publicly guaranteed debt (example: around 10 percent of GDP in the Republic of Congo); PPP investments in LICs rose from 0.4 percent of GDP to 2.4 percent of GDP between 2013 and 2018 (para. 16). - Central bank liabilities contracted on behalf of the government are rarely reported in public debt statistics except transactions with the Fund (para. 16). ### Cross‑country databases, revisions, and data gaps - Cross‑country external public debt data are fragmented, incomplete, and subject to large revisions; dispersed across over a dozen main databases with differing coverage and methodologies (para. 17). - World Bank IDS analysis (2018–2022): ex‑post revisions to external public loan commitments added nearly USD 600 billion in previously unreported debt, with newly identified loans split almost equally between official and private creditors. - IDS aggregate revisions (USD billion) by vintage: - IDS 2018: $199 bln - IDS 2019: $123 bln - IDS 2020: $121 bln - IDS 2021: $87 bln - IDS 2022: $56 bln - Domestic public debt often less transparent than external debt in EMDEs; key breakdowns needed by holder type (including residency), maturity, and currency (including whether inflation‑linked). ### Empirical findings on borrower and creditor practices - Main empirical sources: 36 Fiscal Transparency Evaluations (2014–2022); World Bank Debt Reporting Heatmap for LIDCs; staff survey of 105 national websites (2020); G20 Operational Guidelines self‑assessments (37 lending agencies from 14 G20 countries); review of cross‑country databases. - Common country gaps: - Insufficient disclosure outside budgetary central government balance sheet, weak reporting on government guarantees, SOE liabilities, PPP liabilities, accounts payable, insurance, pensions, and standardized guarantee schemes. - One fifth of all LIDCs and MICs do not publish overall public debt data regularly (never published or published data are more than two years old). - Among countries reporting debt stocks, ~80 percent report debt service payments and only 65 percent report on gross/net borrowings (para. on debt flows). - Only about a quarter of LIDCs provide contracted amounts and financial terms of new external public loans by instrument; around one fifth of EMDEs report new external public borrowings with detailed instrument‑level information. ### Examples of stronger practices (countries) - Kenya: public debt statistics bulletins including loan‑level information (2021 External Public Debt Register: amounts contracted and drawn, interest rate, maturity, currency denomination). - Ghana: Annual Public Debt Report lists disbursing external loans with creditor name, purpose, and outstanding amount; lists newly contracted loans with committed amounts. - Seychelles, Thailand, Jamaica: statutory or regulatory publication requirements detailing loan terms, debtor identification, interest rates, amounts, purpose, and repayment terms. ### Creditor transparency practices - Official creditors: many report lending via multilateral initiatives, but reported data is not comprehensive; Paris Club posts aggregate claims since 2008 without detailed breakdowns. - G20 self‑assessments (second round, 2021; 37 lending agencies from 14 G20 members): - ~40 percent assessed information‑sharing practices as strong; ~40 percent as sound. - 20 percent do not share data on their lending. - Over 60 percent are willing to reconcile loan‑level data with IFIs upon request; 20 percent do not participate in reconciliation activities. - About 90 percent report that their lending does not include any confidentiality clauses. - Private creditors: IIF members have started voluntary transaction‑specific reporting, but participation is limited and published loan‑level data are scarce and mostly on marketable debt. ### Drivers of inadequate disclosure — governance, institutional, capacity, and incentives - Legal and institutional gaps: - Review of domestic legal frameworks of 60 EMDEs and LICs: less than half require preparation of medium‑term public debt strategies, annual borrowing plans, or disclosure in debt bulletins; less than a quarter include public sector entities outside general government in public debt definition; less than a quarter require loan‑level disclosure (staff review). - Ambiguities in authority and responsibilities, broad confidentiality clauses, and deficient accountability mechanisms (external audit, legislative controls) hinder transparency. - Weak inter‑ and intra‑agency information flows and inadequate IT: - Debt management offices often manage only a fraction of total public debt; fragmented institutional arrangements limit comprehensive, timely central records. - Inadequate resourcing and operational weaknesses: - Staffing, IT, manual entry reliance, and weak internal coordination are frequently reported challenges, especially in LIDCs. ### Incentives for non‑transparency and illustrative cases - Borrower incentives: - Hide existing borrowing to obtain better terms; political agency problems facilitate diversion of funds or circumvention of fiscal rules. - Case: Mozambique (2013–2016) — three SOEs borrowed over USD2 billion (13 percent of GDP); independent audit found USD500 million diverted; Credit Suisse and VTB Capital settlements noted (Box 1). - Case: Greece (2009–2010 and earlier) — underreporting led to public debt revised up by 15 percent of GDP; repeated misreporting going back to 1997 (Box 1). - Creditor incentives: - Preserve better contract terms (undisclosed collateral), avoid scrutiny by shareholders/regulators, blunt competition. - Proliferation of broad confidentiality clauses, especially in non‑marketable debt contracts, linked to these incentives (para. 31). ### MPA, ongoing initiatives, and reform pillars - MPA four pillars: (i) enhancing debt transparency; (ii) strengthening capacity; (iii) improving analytical tools; (iv) reviewing debt policies (paras. 35–36). - Select initiatives under pillar 1 (Closing data gaps): - CD to improve reporting, medium‑term debt management strategies, legal frameworks, and coverage of contingent liabilities. - World Bank DRS development of new templates; integration with UNCTAD and COMSEC systems; G7/PC initiative to share loan‑by‑loan data of LICs with WB on confidential basis. - 2022 review of IMF Data Standards Initiatives expanded granular public debt data list. - Publication channels include BIS/OECD/IMF/WB Joint External Debt Hub, QPSD, IMF GFS, and IMF public sector balance sheet database. ### Progress, capacity development, and resourcing - CD and training: - FY22: debt transparency training provided to 32 sub‑Saharan African countries. - IMF scaled up fiscal risk CD to more than 50 member countries and rolled out new fiscal risk CD tools. - Since July 2021: IMF online learning program rolled out three new MOOC courses; since May 2021: over 2,000 active government officials participated. - Improvements in country transparency (uneven): - Over past five years, on average ~130 countries reported data to IMF GFS, up from 110 countries 6–7 years ago. - Some government debt/balance sheet data submitted by only 85 countries (out of 130) in 2022. - Joint IMF/WB LIC DSF: 49 new DSAs in 2021 and 54 in 2022. - Since mid‑2021/mid‑2022: creditor and instrument breakdowns published in Fund documents for 28 LICs and 34 MACs. - e‑GDDS progress since 2019: central government debt reporting increased from 40 to 57 countries; external debt data from 35 to 54 countries. - Resource allocation and CD spending: - IMF CD represents about a third of the Fund’s total spending. - In FY22, CD on public debt under the MPA reached USD15 million, about 7 percent of overall CD spending. - Estimated total CD in debt transparency‑related areas amounted to USD11 million in FY22: - Close to 50 percent directed to enhancing public debt reporting. - 30 percent to broadening the debt perimeter to include contingent liabilities from SOEs and PPPs. - Strengthening legal frameworks accounted for 7 percent of total CD in debt transparency. - Under current plans, resource envelope for debt related CD in statistics expected to increase by close to 40 percent by FY24 relative to average of FY22‑23. - STA aims: increase number of countries reporting data, improve quality, increase breadth (central government to general government), and depth (adding debt or balance sheet data). - Over next 2–3 years, expected 5 to 10 new countries will begin reporting data to the GFS. - At current rates, increasing GFS coverage from 85 countries currently reporting some data to full coverage across income groups will take decades; covering most of the MPA agenda over next five years would require a large increase in resources. ### Reform areas, options, and IMF potential contributions - Reform Area 1 — Strengthening domestic legal frameworks: - Key elements (Box 2): broad legal concept of public debt; clear authorization to borrow; strengthened mandates for MoF and DMO; narrow exceptions to disclosure; parliamentary oversight; strengthen legislature and Supreme Audit Institutions. - Operational recommendation: establish an apex middle office within the Ministry of Finance with a complete view of debt liabilities, on‑lending and guarantees of government and SOEs. - IMF potential contributions: demand‑driven CD to support legal/regulatory reform, collaboration with IFIs and development partners, use of Regional Technical Assistance and Training Centers. - Reform Area 2 — Standardization of contractual clauses promoting transparency: - Proposals: restrict confidentiality to legally protected information; standardized template for transaction‑level information as a loan agreement schedule; confidential information template carve‑outs to allow disclosure to OECD/other bodies. - Existing market tools: ICMA Model CACs (2015) and Majority Voting Provisions (MVPs) with information covenants; high take‑up in sovereign bond issuances under New York and English law. - IMF role: convene stakeholders, promote contractual standardization, encourage adoption of MVPs, provide CD on confidentiality frameworks. - Reform Area 3 — Framework for voluntary dissemination and reconciliation of loan‑level data (International Loan Repository, ILR): - ILR features (Box 3): third‑party platform for reconciliation, voluntary or more‑constraining forms (mandatory clearing house), automation of submissions to World Bank’s DRS, contribution depends on public availability of ILR data. - Challenges: voluntary participation, adverse incentives, legal and institutional obstacles; alternative: creditor online access to borrower FMIS for real‑time view of liabilities. - IMF role: advocacy, coordination with World Bank/COMSEC/UNCTAD on standardized templates and electronic reporting. - Reform Area 4 — Direct incentives from IFIs: - Tools: evaluations against standards (DeMPAs, IMF FTEs), conditionality (case‑by‑case under Conditionality Guidelines), and direct requirements (Data Provision to the Fund for Surveillance Purposes policy, DSAs, Debt Limits Policy). - Examples: Angola and Ecuador used conditionality on disclosure of collateralized debt features. - Proposal: stand‑alone in‑depth public debt transparency assessments (Box 5) — methodology development and mission costs estimated. ### Stand‑alone public debt transparency assessments (Box 5) - Purpose: in‑depth, voluntary assessments by Fund staff or self‑assessments to spur levelling‑up to best practices. - Guidance elements to include: - Coverage consistent with IMF’s FTC: public sector liabilities beyond central government, SOE and PPP liabilities, loan‑level data, mechanisms to prevent “hidden debt”. - Comprehensiveness: contracted/disbursed amounts, currency, interest rate, fees, maturity, auction results, liability management operations, debt service projections, governing law, majority restructuring provisions, sovereign immunity waivers, material covenants, guarantees, derivatives. - Consistency: internal reconciliations and stock‑flow alignment. - Governance and policy orientation: legal frameworks, institutional arrangements, legislative oversight, audit, loan approval and issuance decision‑making, coordination with central bank and SOEs. - Timeline and estimated costs: - Development of methodology: about 2 years at total cost USD0.2 million. - Country missions: 0.22 FTE per mission at cost USD0.2 million per mission per country. - Preliminary cost schedule (USD Million): - FY24: Debt Transparency Assessments — development of methodology: 0.25 - FY25: Missions: 0.65 - FY26: Missions: 1.0 ### Costs, challenges, and implementation considerations - Disclosure and reconciliation at high granularity entail costs and implementation challenges, including increased reporting burden and potential duplication. - Mitigants and enablers: - Widespread digitalization: more than 70 percent of EMDEs use UNCTAD’s or Commonwealth Secretariat’s debt management systems, enabling automated submission to WB’s DRS. - Coordination across IFIs and standardization of reporting templates can reduce duplication. - Legal and political complexity: law reform is time‑consuming; contractual standardization applies to new contracts only; carve‑outs and domestic legal alignment needed to avoid enforcement uncertainty. ### Conclusions and operational recommendations - Key findings: - Public debt transparency supports macroeconomic stability, inclusive growth, and better sovereign financing conditions; empirical evidence shows transparency lowers sovereign spreads. - Significant disclosure gaps persist in LIDCs and EMs, driven by larger shares of non‑marketable debt, greater SOE roles, weaker accounting/reporting practices, governance gaps, and capacity constraints. - Creditor practices vary; many G20 creditors report sound practices but information sharing and transparency need improvement. - MPA implementation has advanced tools, CD, and standards but substantial additional resources are required to cover the full agenda over the next five years. - Recommended IMF operational actions (to be considered against other priorities and resource constraints): - Continue MPA initiatives to address public debt vulnerabilities. - Scale up CD on strengthening legal frameworks and loan‑level disclosure for borrowers and creditors. - Use IMF convening power to build consensus on standardized confidentiality clauses and promote reconciliation solutions (e.g., ILR concepts). - Apply tailored conditionality, where macro‑critical and consistent with Conditionality Guidelines, and offer transparency assessments as a tool to strengthen practices. - Implementation will require cross‑border coordination, increased resources, careful sequencing, and attention to legal, institutional, and incentive constraints. *Source: ppea2023034 — INTRODUCTION and chapter excerpts on public debt transparency (IMF staff analysis).* ### INTRODUCTION __________________________________________________________________________________ 4 ### ppea2023034 - INTRODUCTION __________________________________________________________________________________ 4 ### Introduction: case for enhancing public debt transparency - Public debt transparency is a key dimension of fiscal transparency and contributes to macroeconomic stability, growth, and faster resolution in debt restructurings (paras. 1–2). - Creditors and debtors can substantially improve transparency; governance gaps, capacity limitations, and information-sharing weaknesses hinder public debt transparency (para. 2). - Limited transparency often results from an interplay of institutional, governance, capacity gaps, and adverse incentives, particularly in developing countries (para. 3). - Progress has been made under the Joint IMF-World Bank Multipronged Approach to Address Debt Vulnerabilities (MPA) since 2018; additional reform areas could further enhance transparency, including: - (i) strengthening domestic legal frameworks for public debt; - (ii) standardizing clauses that promote transparency in public debt contracts; - (iii) frameworks for voluntary disclosure and reconciliation of loan-level information by borrowers and creditors; and - (iv) introducing direct incentives from International Financial Institutions (IFIs) (para. 4). - The IMF could contribute to these reforms but would need significant additional resources, including provision of capacity development (CD), promoting standardized non-disclosure clauses, tailored conditionality when critical to IMF-supported programs, and providing in-depth public debt transparency assessments if requested; significant progress over the next five years under the MPA would already require stepping up resources (para. 5). - A Background Paper accompanies this main paper and provides further empirical evidence and elaboration on sound public debt management practices and international data standards (para. 6). ### Definition and scope of public debt transparency - Definition: availability of timely, accurate, and sufficiently comprehensive information on public debt—and related procedures and policies—to stakeholders; dissemination should present detailed picture of contracted and outstanding stocks of public debt and public contingent liabilities, their key financial and legal terms, creditor profile, and debt service payments; disclosure of debt management policies and processes is also important (para. 7). - Coverage guidance (based on the IMF’s Fiscal Transparency Code and Public Sector Debt Statistics Guide): - International statistical standards call for a broad definition, including general government, all central bank liabilities (not just those contracted on behalf of the general government), and liabilities of all public corporations as part of the public sector debt (para. 8). - Coverage of public debt-related risks should, at a minimum, include explicit contingent liabilities such as government guaranteed and non-guaranteed debt of public non-financial corporations that are market producers (SOEs) and liabilities related to PPPs; contingent liabilities should be disclosed though they are not debt per se (para. 8). - Debt instruments include all liabilities (both performing and in arrears) requiring future payments of interest and/or principal from the sovereign, such as loans, deposits, securities, suppliers’ credits, and other accounts payable; other accounts payable can be particularly significant in LICs and should be disclosed regularly (para. 8). - Forward-looking transparency: should cover expected future evolution of debt, key debt portfolio composition and risk indicators, projected public debt evolution from borrowing decisions over the medium term, and key assumptions on sources of new borrowings and their financial terms (para. 9). - Degrees of granularity to meet stakeholders’ needs: - Policymakers, creditors, analysts, and IFIs: aggregate data with analytical breakdowns (by instrument and creditor type) may suffice (para. 10). - General public, creditors, analysts, and IFIs: access to information on individual public debt instruments, including key financial and legal terms, benefits public accountability and risk analysis (para. 10). - In borrowing countries: relevant officials, legislatures, and state audit institutions should have access to individual debt contracts; debt advisors in restructuring contexts require such access (para. 10). - IMF obligations and role: - IMF’s Articles of Agreement obligate members to provide the Fund with information deemed necessary for its activities, except when members lack capacity; members are not required to publish the data (para. 11). - The Fund can request additional data as a condition for financing under an IMF-supported program if such information is critical for achieving goals or monitoring implementation (para. 11). - Main responsibility for public debt transparency lies with sovereigns and their creditors, supported by international initiatives; borrowers are primarily accountable to citizens but disclosure may be hampered by governance, IT, capacity, weak incentives, and confidentiality clauses; creditor disclosure also matters and can signal shared responsibility for data transparency as a global public good (para. 12). ### Why public debt transparency matters - Macro-fiscal and market benefits: - Contributes to macroeconomic stability and inclusive growth by guiding economic policy and improving debt management and access to global capital (para. 13). - Enables accurate assessment of debt sustainability, comparability of public debt statistics, evenhandedness in debt assessments and policy advice, lowers average risk premia across borrowers, supports stable and adequate access to financing, and facilitates orderly debt restructurings (para. 13). - Reduces creditor uncertainty about true public debt burdens and creditor seniority, improving access and terms for sustainable borrowers; helps identify risks before they materialize and facilitates fair burden-sharing in restructurings (para. 13). - Empirical evidence: - IMF research shows increased fiscal and public debt transparency can meaningfully lower emerging markets’ bond spreads and increase foreign investors’ willingness to hold EM sovereign debt (Choi and Hashimoto, 2018; Kemoe and Zhan, 2018) (para. 14). - Gonzalez‑Garcia (2022) provides evidence of significant reduction in sovereign spreads following improvements in data transparency via SDDS subscription or dissemination under e-GDDS (para. 14). - Public debt transparency promotes a diversified investor base and greater access to finance (para. 14). ### Disclosure practices and underlying drivers — key observations - Rising public debt and complexity: - Public debt has grown rapidly in the last 10 to 15 years; April 2023 WEO reports public debt (domestic plus external) has increased by about 30 percentage points globally since 2007, with large increases across advanced economies, EMs, and LICs (para. 15). - World Bank IDS data: stock of external public debt in nominal US dollar terms has at least doubled across EMDEs since 2010; shares of external public debt held by commercial creditors and non-Paris Club creditors increased significantly (para. 15). - Complexity captured imperfectly: - Collateralized borrowing and collateral-like features (escrow accounts, debt service reserve accounts, deposit accounts) have become prevalent; Dealogic data show increased reliance on such borrowing in low- and lower-middle income countries since 2010 (para. 16). - Several recent public debt problems had collateral or collateral-like arrangements as important contributing factors (examples cited: Angola, Chad, Ecuador, Republic of Congo, South Sudan) (para. 16). - Mihalyi and others (2022) find only half of identified commodity-backed loans in sub-Saharan Africa were reported in the World Bank’s Debtor Reporting System (para. 16). - SOEs: expanding coverage to include SOEs has revealed sizable amounts of public and publicly guaranteed debt previously uncaptured (example: around 10 percent of GDP in the Republic of Congo); March 2023 IMF Public Sector Balance Sheet database shows accounts payable have increased by an average of 5 percent of GDP over the last two decades in 25 countries with time-series data (para. 16). - PPPs: PPP investments in LICs increased from 0.4 percent of GDP to 2.4 percent of GDP between 2013 and 2018; PPP contracts often involve public guarantees or payment commitments representing contingent or direct liabilities (para. 16). - Central bank debt issuance and foreign-currency swaps are increasingly used to facilitate government financing rather than for monetary policy; central bank liabilities contracted on behalf of the government are rarely reported in public debt statistics except transactions with the Fund (para. 16). ### Disclosure drivers and barriers (summary of responsibilities and constraints) - Primary responsibility: sovereign borrowers to comprehensively record, monitor, and publish all commitments and obligations (para. 12). - Barriers on the borrower side: governance issues, weak information technology, capacity constraints, weak incentives, confidentiality clauses (para. 12). - Role for creditors: disclosure of lending to sovereigns to ensure accountability to their citizens/shareholders and to help overcome debtor capacity constraints; creditor disclosure can provide signaling of shared responsibility (para. 12). *Source: INTRODUCTION, ppea2023034 - INTRODUCTION* ### 17. Against this backdrop, the external public debt data in cross-country databases are ### 17. Against this backdrop, the external public debt data in cross-country databases are ### Cross-country external public debt data - External public debt data in cross-country databases are fragmented, incomplete, and subject to large revisions. - Cross-country data on public debt is dispersed across over a dozen main databases. - Databases have different analytical coverage and rely on a variety of reporting frameworks and methodologies, implying duplication of effort by countries’ data providers and potential inconsistencies across databases. - Nearly all databases aim at universal country coverage, but actual availability of data falls far short. - Most databases include breakdown of aggregate public debt data by instrument, but instrument coverage is partial in many cases. - Breakdowns by creditor type feature in more than half of the databases, but definitions vary and data availability is limited. - Analysis by World Bank staff of public external debt data reported by countries and published in the World Bank’s IDS database suggests that from 2018 to 2022, ex-post revisions to external public loan commitments added nearly USD 600 billion in previously unreported debt. - Newly identified loans were extended in almost equal parts by official and private creditors. - Figure data (aggregate revisions, USD billion) by IDS vintage: - IDS 2018: $199 bln - IDS 2019: $123 bln - IDS 2020: $121 bln - IDS 2021: $87 bln - IDS 2022: $56 bln ### Domestic public debt transparency - Domestic public debt is often less transparent than external debt across EMDEs. - Problems (missing debt from official statistics, non-comparability in definitions, lack of data in cross-country databases) are at least as prevalent with public domestic debt as with external debt. - Improving understanding of countries' public domestic debt (both marketable and non-marketable) is critical to enhance overall public debt transparency. - Key breakdowns needed: debt issued under domestic law by holder type (including residency), maturity, and currency (including whether inflation-linked) for accurate assessment of sustainability risks. ### Revisions and debt sustainability analyses (DSAs) - Revisions to historical data in DSAs contribute to a perception of unreliability of public debt data. - Prevalent DSA practice is to use public debt data published or provided directly by member countries rather than relying on public databases, which can lead to discrepancies due to differences in coverage or frequency of revisions. - Historical revisions used in DSAs are often the result of backward propagation of expansion of coverage. ### Borrower and creditor practices and empirical evidence - Main sources for empirical analysis include: Fund staff review of 36 Fiscal Transparency Evaluations (2014–2022); World Bank’s Debt Reporting Heatmap for LIDCs; Fund staff survey of national websites of 105 low- and middle-income countries (2020); Fund staff analysis of second round of voluntary self-assessments of adherence to the 2017 G20 Operational Guidelines by 37 lending agencies from 14 G20 creditor countries; Fund staff review of over a dozen main publicly available databases. - Fiscal Transparency Evaluations show common gaps across countries: insufficient disclosure of public liabilities outside budgetary central government balance sheet, government guarantees, liabilities of public corporations and related to PPPs, and liabilities from accounts payable, insurance, pensions, and standardized guarantee schemes. - Advanced economies: gaps are narrower but there remain transparency challenges in guaranteed and contingent public debt, including risks from PPPs. - LIDCs and EMs: large disclosure gaps where non-marketable debt share and SOEs’ role are greater, accounting and reporting practices less developed. - One fifth of all LIDCs and MICs do not publish overall public debt data regularly (never published or published data are more than two years old). - Among LIDCs that publish public debt data, common problems include insufficient aggregate data on public liabilities not on the central government balance sheet, inadequate coverage of debt flows and some debt instruments, lack of sufficient breakdowns by creditor type, and lack of granular information on key terms of individual debt contracts. - Table 1 key findings (LIDCs common disclosure gaps): - Sectoral coverage: most public debt statistics cover only the central government; little information on public corporations and PPPs. - Instrument coverage: majority publish external and domestic public debt data, but budgetary payables and arrears generally remain unreported; expenditure arrears have gone undetected in official debt data in several LIDCs. - Terms of non-marketable borrowing: only about a quarter of LIDCs provide information on contracted amounts and financial terms of new external public loans by instrument; only around one fifth of EMDEs report new external public borrowings with detailed instrument-level information; terms of domestic non-marketable debt from domestic institutions usually not publicly available. - Debt holder profile: close to 80 percent of 105 EMDEs report external loans by creditor category and over 60 percent disclose individual creditor positions; only the World Bank’s IDS among main cross-country databases provides breakdowns of public external debt by creditor type and by individual creditors; only 44 percent of EMDEs provide information on holders of domestically issued government securities. - Debt flows: reporting on government borrowing and debt service payments is weaker than on debt stock positions; among countries reporting debt stock positions, around 80 percent report debt service payments and only 65 percent report on gross/net borrowings. ### Examples of stronger practices - Several LICs and EMs adhere to high degrees of public debt transparency, including loan-level information: - Kenya: public debt statistics bulletins with public and publicly guaranteed debt coverage; medium-term public debt management strategies published regularly; Budget Policy Statement and annual Public Debt Management Report include contingent liabilities; 2021 External Public Debt Register provided loan-level information (amounts contracted and drawn, interest rate, maturity, currency denomination). - Ghana: Annual Public Debt Report lists all disbursing external loans with creditor name, purpose, and outstanding amount, and lists newly contracted loans with committed amounts. - Seychelles: terms of repayment, debtor identification, interest rate, amount of debt, purpose, and accounting manner published in the Official Gazette as a condition for debt agreement effect. - Thailand: Ministry of Finance required to publish in the Government gazette within 60 days from loan conclusion: source of loan, currency, amount, conversion to Thai baht, interest rate, fees, expenses, discount, repayment period of principal, use of proceeds, and conditions and terms. - Jamaica: Ministry of Finance must prepare quarterly reports on new borrowings including amounts raised, purposes, and terms and conditions. ### Transparency practices of creditors - Many official creditors report lending data through multilateral initiatives, but reported data is not comprehensive. - Since 2008, the Paris Club posts aggregate amount of its claims annually but without breakdown by creditor and instrument or information on average terms or treatment in restructuring. - Many OECD and non-OECD countries and IFIs report detailed grants and concessional loans to the Creditor Reporting System (CRS); comprehensiveness hampered by non-participation of the largest official bilateral creditor to EMDEs. - Increased use of broad confidentiality clauses in non-marketable loan contracts may limit granularity of published data; a study of 100 contracts found a major non-PC lender more likely to include confidentiality clauses that can be broad in scope. - Multilateral development banks (IBRD, IDA, ADB, AfDB, IDB) generally adhere to high standards and publish terms and conditions of their loans. - G20 self-assessments (second round, 2021, 37 lending agencies from 14 G20 members): - About 40 percent of respondents assessed their information-sharing practices as strong and another 40 percent as sound. - 20 percent of respondents do not share data on their lending. - Most respondents reconcile loan-level data with borrowers at least annually. - Over 60 percent are willing to reconcile such data with IFIs upon request. - 20 percent of the sample do not participate in reconciliation activities. - About 90 percent report that their lending does not include any confidentiality clauses. - Private creditors (IIF members) have started voluntary transaction-specific reporting on lending to sovereigns, but data is not yet public; participation limited and published loan-level data scarce and mostly on marketable debt. ### Underlying drivers of inadequate public debt disclosure - Governance gaps in domestic legal, institutional, and operational frameworks and capacity limitations hinder public debt transparency. - Fund staff review of domestic legal frameworks of 60 EMDEs and LICs found less than half require preparation of medium-term public debt strategy, annual borrowing plans, or disclosure of public debt data in debt bulletins or other reports. - Less than a quarter of surveyed countries include public sector entities outside the general government in the definition of public debt; special purpose vehicles and instruments other than loans and securities often excluded. - Less than a quarter of countries require disclosure of loan-level information of financial and non-financial terms of public debt contracts. - Ambiguously defined authority and responsibilities limit government ability to manage, monitor, and disclose public debt comprehensively. - Use of broad confidentiality contractual clauses without appropriate legal safeguards can limit transparency. - Deficient accountability mechanisms (external audit, limited legislative controls) further hinder transparency. - Weak inter- and intra-agency information flows and inadequate IT impede effective accounting, recording, and reporting on public debt. - Debt management offices in developing economies often manage only a fraction of total public debt and are unaware of debts contracted by other government entities. - Fragmented institutional arrangements limit accountability, slow information flows to a centralized information center, and produce public debt databases lacking comprehensive coverage, complete records, and timely updates. - Inadequate resourcing and operational weaknesses: - Staffing and physical/technological resource constraints and weak institutional/operational arrangements for data recording, monitoring, and receipt of public debt data are frequently reported challenges. - In LIDCs, scarce human resources and IT infrastructure constrain collection, compilation, and dissemination of public debt statistics. - Debt recording often relies on manual entry processes, exposing records to human errors and operational risks. - Weak information systems, absence of digitalization strategies, lack of legally constituted agencies/units, ineffective internal processes and coordination among agencies, and weak incentives in environments of limited public scrutiny and internal audit hinder transparency. *Source: IMF staff analysis as presented in the provided content unit.* ### 31. In environments with large governance and capacity gaps, incentives for non- ### ppea2023034 - 31. In environments with large governance and capacity gaps, incentives for non- ### Incentives for non-transparency: borrowers and creditors - Borrower-side incentives to limit transparency: - Obtain better terms from new lenders by hiding existing borrowing. - Political agency problems: lack of disclosure makes it easier to divert public funds for private gain or circumvent fiscal rules. - Case references: Mozambique in 2013–16 and Greece in 2009–10 (see Box 1). - Creditor-side incentives to limit transparency: - Allow better contract terms (for example, the use of undisclosed collateral to gain creditor seniority). - Make it more difficult for shareholders, regulators, or home country governments to limit lending volumes or lending risks. - Blunt competition: transparency of debt contracts may allow potential borrowers to find or negotiate better deals. - Creditor leverage in hindering transparency is larger when negotiating with borrowers that have fewer financing options (typical for high-risk borrowers). - Recent development: - Proliferation of broad confidentiality clauses in public debt contracts, especially for non-marketable debt, appears to be one consequence of the interplay between environment and incentives. - Note: used properly, confidentiality clauses can legitimately protect creditors’ proprietary knowhow of how to structure public debt contracts to minimize risks. ### Illustrative country case studies (Box 1) - Mozambique (2013–2016): - Three SOEs borrowed over USD2 billion (13 percent of GDP) through government-guaranteed loans for vessel and equipment purchases. - Government guarantees issued without following proper legal procedures and in breach of legal limits. - Credit Suisse and VTB Capital arranged and marketed the loans to international investors. - Independent audit revealed USD500 million diverted from projects; at least USD200 million used to pay bribes and kickbacks to government officials and bankers. - Credit Suisse agreed to pay USD475 million in fines and write off USD200 million in debt owed by Mozambique; additionally USD22.6 million in restitution to defrauded investors. - VTB Capital agreed to pay more than USD6 million to settle SEC claims. - Greece (2009–2010 and earlier): - Greek budget deficit for 2009 was almost three times as big as previously reported; public debt revised up by 15 percent of GDP. - Investigation found Greek officials knew about data discrepancies but failed to address them; desire to keep some sovereign liabilities outside Eurostat statistics and EU monitoring mechanisms. - 2004 Eurostat report revealed repeated misreporting going back to 1997; underreporting due to off-budget expenses, improper consolidation, and exclusion of obligations linked to capitalized interest and share-exchangeable bonds. - 2010 European Commission report: institutional set-up did not guarantee independence, integrity, and accountability of national statistical authorities. ### Policy objectives to improve public debt transparency (paragraph 33) - Close main data gaps identified by review of borrower and creditor practices: - Biggest data gaps: (i) lack of information on public debt breakdowns by creditor and instrument type in most widely used public databases; (ii) inadequate aggregate information on public liabilities not included on the central government balance sheet, including unguaranteed SOE liabilities and PPP-related ones; and (iii) general lack of granular information on key terms of individual debt contracts. - Address underlying distortions that incentivize weak transparency: - Strengthen capacity, institutional and operational frameworks to reduce information costs and agency problems. - Increase competition in the sovereign debt market to provide additional credit options for borrowers and reduce creditor ability to force confidentiality conditions. - Lean against incentives to misreport debt, liabilities, and risks: - While addressing root causes is preferable, raising the costs or penalties for non-disclosure may have a beneficial effect. ### Coordination imperative (paragraph 34) - Coordination of initiatives by borrowers, creditors, and the international community is key due to: - Global nature of sovereign debt market. - Transborder reach of negative externalities from non-transparent practices. ### Ongoing initiatives and the Multipronged Approach to Address Debt Vulnerabilities (MPA) (paragraphs 35–36, Table 2 summary) - MPA four pillars: (i) enhancing debt transparency; (ii) strengthening capacity; (iii) improving analytical tools; and (iv) reviewing debt policies. - Select ongoing initiatives and future work: - 1. Closing data gaps - a. Improving debt data reporting, debt management strategies, and legal frameworks through provision of CD: - Gradual increase in countries reporting to Quarterly Public Sector Debt Statistics database, aided by the D4D fund initiative. - World Bank promotes accrual based IPSAS accounting standards in the public sector. - Going forward CD work will include: 1) enhancing reporting of public debt data in official publications and investor relations functions; 2) producing and publishing medium-term public debt management strategies and annual borrowing plans; 3) strengthening legal frameworks and institutional capacity in creditor and debtor countries; 4) improving coverage of contingent liabilities, including those arising from SOEs and PPPs, and systematically tracking lending commitments as well as disbursements. - b. Improving the coverage and validation of loan-level data: - World Bank Debtor Reporting System (DRS) ongoing development of new templates covering additional debt instruments, voluntary domestic debt data, and harmonization of debt reporting methodologies with international statistical standards. - Going forward: (i) expect to integrate new templates into existing debt recording and reporting systems from UNCTAD and COMSEC; (ii) pursue initiative by World Bank and Japan, where G7 and PC share loan-by-loan data of LICs with the World Bank (WB) on confidential basis. - c. Developing and promoting the adoption of international standards and codes: - 2022 review of IMF Data Standards Initiatives expanded list of granular data on public debt, including breakdowns by creditors type and top creditors. - Statistical standards and guidance to promote best practices for debt data disclosure. - Improving quality of projections and data on public debt and contingent liabilities. - d. Publishing national data in statistical databases: - Databases include BIS/OECD/IMF/WB Joint External Debt Hub, QPSD, and IMF GFS. - IMF compiled public sector balance sheet database. - 2. Addressing underlying distortions - a. Reviewing analytical tools and policies: - Expanded perimeter of DSAs for LICs and MACs. - Review of Debt Limits and Arrears Policies with required debt breakdown by creditor type. - New enhanced safeguards for accessing PRGT require granular discussion of composition and evaluation of public debt in LIC programs involving high access or when public debt risks are high. - WB’s inclusion of targeted performance and policy actions (PPAs) in WB lending conditionality. - Going forward: Review of the LIC DSF expected over the following few years. - b. Assessments of public debt management and reporting practices: - IMF Fiscal Transparency Evaluations and WB’s DeMPAs. - c. Supporting creditors’ efforts to enhance public debt transparency: - IMF and WB support voluntary self-assessments of adherence to G20 Operational Guidelines for Sustainable Financing. - Several G20 creditors have started publishing loan-by-loan data. - Going forward: aim to strengthen coordination of IFIs’ work and explore synergies among initiatives (e.g., OECD work on IIF Voluntary Principles, OECD’s CRS, BIS International Banking Statistics, Sustainable Lending Principles for Official Export Credits, WB work on public debt data reconciliation). - 3. Leaning against incentives to misreport - a. Including debt data disclosure requirements under the G20 DSSI and Common Framework: - WB published detailed data on external public debt for DSSI-eligible countries. - Debt breakdowns by creditor type published for all countries with operations with the WB. - b. Upgrade public debt provision requirements in the ongoing Review of Data Provision to the Fund for Surveillance Purposes: - Expanding coverage of mandatory public sector data provision to cover debt for a broader perimeter (general government) and providing additional debt breakdowns. ### Multilateral and global initiatives (paragraph 36) - G7 Partnership for Global Infrastructure and Investment (PGII) aims at mobilizing USD600 billion by 2027 of transparent financing for infrastructure in low- and middle-income countries. - G20 Data Gaps Initiative (DGI) includes initiatives enhancing available information on debt securities and public debt statistics; October 2022 G20 Finance Ministers and Central Bank Governors welcomed the new DGI workplan. ### Progress to date and resource allocation (paragraphs 37–41) - Capacity development (CD) and training: - In FY22, debt transparency training provided to 32 sub-Saharan African countries. - IMF scaled up fiscal risk CD delivering to more than 50 member countries and rolled out new fiscal risk CD tools. - World Bank enhanced its fiscal risk toolkit and assessments, including fiscal risk assessment missions, integrated SOE assessments and joint WB/IMF PFRAM assessments. - Since July 2021, IMF online learning program rolled out three new MOOC courses; since May 2021, over 2,000 active government officials have participated. - Improvements in country transparency (uneven): - Over past five years, on average, about 130 countries reported data to the IMF GFS database, an increase from 110 countries 6–7 years ago. - Some government debt/balance sheet data was submitted by only 85 countries (out of 130) in 2022. - Joint IMF/WB LIC DSF implementation: 49 new DSAs prepared in 2021 and 54 in 2022. - Twenty-five countries adjusted contingent liability stress tests to reflect narrow coverage and contingent liabilities; baseline debt coverage expanded in 7 countries since end-2020. - Since mid-2021 (revised Debt Limits policy) and mid-2022 (revised MAC DSA rollout), creditor and instrument breakdown of aggregate public debt data published in Fund documents for 28 LICs and 34 MACs. - Under IMF Data Standards Initiatives, e-GDDS countries publishing central government debt on NSDPs increased from 40 to 57, and external debt data from 35 to 54 since 2019. - Resource allocation: - IMF CD represents about a third of the Fund’s total spending. - In FY22, CD on public debt under the MPA reached USD15 million, about 7 percent of overall CD spending. - Estimated total CD in debt transparency-related areas amounted to USD11 million in FY22: - Close to 50 percent directed to enhancing public debt reporting. - 30 percent to broadening the debt perimeter to include contingent liabilities from SOEs and PPPs. - Strengthening legal frameworks accounted for 7 percent of total CD in debt transparency. - Under current plans, resource envelope for debt related CD in statistics expected to increase by close to 40 percent by FY24 relative to average of FY22-23. - STA’s CD aims: increase number of countries reporting data, improve quality, increase breadth (e.g., budgetary central government to general government), and depth (adding debt or balance sheet data). - Over next 2–3 years, expected that 5 to 10 new countries will begin reporting data to the GFS. - At current rates, increasing coverage of public debt in GFS from 85 countries currently reporting some data to full coverage across country income groups will take decades; covering most of the MPA agenda over next five years would require a large increase in resources. ### Additional reform areas (paragraphs 42 and concluding lines) - Emerging consensus on complementary actions focused on: - Strengthening domestic legal frameworks for public debt. - Standardizing clauses that promote transparency in public debt contracts. - Frameworks for voluntary disclosure and reconciliation of loan-level information by borrowers and creditors. - Introducing direct incentives from International Financial Institutions (IFIs). - Reform proposals cited from external observers and researchers include work by: G30, Bretton Woods Committee (SDW Group), academics (Gelpern, 2018), and the World Bank (Rivetti, 2021). *International Monetary Fund — MAKING PUBLIC DEBT PUBLIC—ONGOING INITIATIVES AND REFORM OPTIONS (content unit ppea2023034 - excerpt).* ### 43. IMF contributions to these reform areas would require time and significant additional ### IMF contributions to these reform areas would require time and significant additional resources ### Overview - IMF contributions to these reform areas would require time and significant additional resources. - These contributions would need to be considered together with other Fund priorities as part of the budget process. - Effectiveness of resources allocated to CD in debt transparency versus other areas needs to be assessed. - Most cost estimates refer to the provision of CD, but contributions also require additional work from staff in Area and Functional Departments that would need to be accounted for. ### Reform Area 1. Strengthening Domestic Legal Frameworks for Public Debt - Statutory legal regimes for public debt and financial management—including authorization, recording, monitoring, and reporting and disclosure requirements—play a critical role in achieving public debt transparency. - The borrowing authorization framework of debtor countries has been a focus of other proposals, including proposals by the Bretton Woods Committee and the G30 that public disclosure of sovereign debt be part of debt authorization requirements under domestic laws and a condition for validity and enforceability of such debt. - Proposals have been made to enhance transparency via legally mandated creditor disclosure, including mandatory disclosure of private and bilateral lending to sovereigns by creditor countries (SDW Group of Bretton Woods Committee (2022) proposal). - In the absence of legislative requirements, implementation of disclosure by creditors has largely been voluntary. ### Box 2 — Enhancing Debt Transparency by Strengthening Legal and Institutional Frameworks (key elements) - ensuring consistency and clarity in the legal concept of public debt, aiming for a broad coverage of the whole public sector and of all debt instruments; - providing a clear authorization to borrow, comprising the definition of powers, roles, and responsibilities within the borrowing process and a clear delegation process; - enhancing institutional arrangements for debt compilation, monitoring and disclosure by strengthening the legal mandates of the Ministry of Finance and the Debt Management Office, providing sufficient powers to request information from public sector entities other than central government, and introducing legal mechanisms to facilitate intergovernmental coordination; - ensuring that the law provides for narrow exceptions to disclosure and that tight controls on confidentiality agreements are in place by providing clear guidance on the conditions and scope of confidentiality, as well as parliamentary oversight; - strengthening the oversight role of the legislature over public debt disclosure and the proper scrutiny by independent institutions such as Supreme Audit Institutions. - Operational recommendation: establish an apex middle office within the Ministry of Finance with complete view of debt liabilities, on-lending and guarantees of the government and SOEs, and vest the Ministry of Finance with oversight and information-collection powers from public sector entities outside the central government. ### Analysis — Reform Area 1 - Strengthening domestic legal frameworks is key for preventing opaque debt; laws entrench good practices and bind discretion of policy makers and public debt managers. - Clear and unambiguous debt disclosure requirements for contracting public debt create incentives for creditors and debtors to disclose new transactions from the outset. - Robust reporting requirements in laws help taxpayers monitor government officials and hold them accountable. - Legal frameworks can address: control on borrowing by entities outside central government, fragmented institutional arrangements for debt data collection and disclosure, and lack of proper monitoring and oversight of public debt. - Proposals linking disclosure with authorization requirements and public debt validity/enforceability could create positive incentives but would require careful consideration given potential capacity constraints and legal uncertainty in sovereign debt markets; foreign-law enforcement uncertainty may arise where debt deemed unauthorized under issuing-country law may still be enforced in New York or English courts. - Law reform is time-consuming and complex; policymakers must consider political support, scope and ambition of legislative packages, sequencing given resource constraints, and development of institutional capacity. - If legal reform is not feasible short-term, some reforms could be advanced pragmatically through secondary legislation depending on interpretive flexibility of current laws. - On creditor side, moving from voluntary to mandatory disclosure would require amendments to their domestic laws; legal impediments (privacy laws, banking secrecy, freedom of information limitations) may restrict voluntary disclosure and need case-by-case assessment and proper legal authorizations. ### Potential Fund contribution — Reform Area 1 - The IMF may contribute via capacity development: - provide demand-driven capacity development to support members in strengthening domestic legal and regulatory frameworks, including on prescribing loan-level dissemination of information in line with best practices in public debt transparency for lenders and borrowers; - leverage complementarities through collaboration with other institutions; collaborate with other IFIs and development partners on CD; - IMF Regional Technical Assistance Centers and Regional Training Centers should serve as essential resources in developing authorities’ capacity; - maximize efficiency and explore synergies between CD, including outreach, analytical work, surveillance, and program work, given limited resources. ### Reform Area 2. Standardization of Clauses Promoting Transparency in Public Debt Contracts - Some proposals address confidentiality in contracts and recommend restricting contractual confidentiality requirements to information that cannot be disclosed by law. - Maslen and Aslan (2022) suggest a standardized template for transaction-level information, tailored to specific transactions and included as a schedule to the loan/transaction agreement for public disclosure. - The voluntary IIF/OECD Initiative (2020) recommends a confidential information template carve-out allowing disclosure of information covered by the Debt Transparency Principles to the OECD even if a confidentiality clause exists. - ICMA Model Collective Action Clauses (CACs) (ICMA, 2015) and Majority Voting Provisions (MVPs) for commercial loan agreements (ICMA, 2022) include information covenants requiring borrowers to provide creditors certain information ahead of restructurings; uptake of ICMA Model CACs (including the information covenant) has become market practice with very high take up in sovereign bond issuances under New York and English law. - Standard MVPs for commercial loans were recently published and staff are working to encourage adoption. ### Analysis — Reform Area 2 - Broad-based support from many stakeholders is indispensable for contractual standardization. - Stakeholders differ by creditor type: - For private debt instruments: (i) authorities of borrower countries, (ii) authorities of key jurisdictions where international sovereign debt is commonly issued, (iii) market participants, and (iv) legal experts from relevant jurisdictions. - In bilateral lending, borrower and lenders typically determine contractual terms, often without third-party input. - Different levels of contractual standardization may be necessary given variety of instruments, creditors, and legal characteristics; alignment with domestic disclosure laws may require full contract-law consistency. - Standardized confidentiality clauses will need to be applied to new contracts only, raising the issue of the outstanding stock of existing contracts. - Carve-out clauses in public debt contracts would promote legal certainty, but lender consent may still be required in some cases and few court precedents exist for bilateral sovereign debt contracts to inform carve-out effectiveness. - Domestic legal and policy frameworks on confidentiality can complement contractual standardization by providing clear guidance on conditions and scope of confidentiality, requiring parliamentary oversight and safeguards (administrative or judicial remedies), and defining confidentiality policies (types of information subject to non-disclosure; term/length of validity; applicable exemptions; consequences for non-compliance; management of confidential information). ### Potential Fund contribution — Reform Area 2 - The IMF may: - help build consensus on contractual standardization by employing its convening power and drawing on expertise in public debt management and transparency; - draw on its experience with promotion of enhanced CACs in international sovereign bonds; - help build consensus among trade associations, industry groups, CSOs, and governments; - provide capacity development to support members in strengthening domestic legal and policy frameworks on confidentiality. ### Reform Area 3. Framework for Voluntary Dissemination and Reconciliation of Granular Public Debt Data - Proposals include disclosure to the public of public debt contracts in their entirety, and introduction of templates for transaction-level information as schedules to loan agreements. - The World Bank has advanced a proposal for an International Loan Repository (ILR) as a third-party platform for reconciliation and dissemination of data on external loans records between creditors and debtors. - Loan-level data already being provided to WB’s DRS and to the OECD DTI would contribute significantly to debt transparency. ### Box 3 — International Loan Repository (ILR) (key features) - An ILR is a third-party platform for reconciliation of external loans records between creditors and debtors. - Envisioned technological solution through voluntary participation would allow automation of data entry in borrowers’ debt recording systems and of data submissions to the World Bank’s DRS and, when fully in place, enable reconciliation of stock of public debt data in cross-country databases. - Different forms of ILR require different degrees of commitment by debtors and creditors: - basic form: voluntary submission of transaction data by debtors and creditors, with a third party reconciling the data; - more constraining form: functioning as a mandatory clearing house for all loan-related transactions. - Contribution to debt transparency depends on the extent to which data from the ILR can be made public. ### Analysis — Reform Area 3 - Disclosure before and during debt restructuring operations has long been promoted as a transparency improvement; lack of transparency on public debt terms and composition by creditor hampers creditors’ ability to assess comparable treatment and delays restructurings. - Incidence and magnitude of bilateral debt restructurings is not systematically disclosed currently (Horn, Reinhart and Trebesch, 2022), contributing to delays and increased long-term costs to borrowers. - The ILR faces significant implementation challenges beyond technology: - it does not clearly solve adverse incentives that hamper transparency; debtors and creditors may avoid voluntary participation and committing transaction completion to the system; - benefits to borrowers from reconciliation services and reporting facilities would be important, but for ILR to be effective and gain traction, existing non-technological obstacles to maintaining updated and reconciled public debt databases by sovereign borrowers would need to be addressed. *Source: ppea2023034 - IMF chapter text on debt transparency reform areas (paragraphs 43–60, Box 2, Box 3, and related analysis and potential Fund contributions).* ### 61. Disclosure of more comprehensive, detailed, and better validated public debt data is ### 61. Disclosure of more comprehensive, detailed, and better validated public debt data is ### Disclosure needs and rationale - Disclosure should include creditor name and purpose of the loan, as well as the key financial and legal terms for all public debt instruments (see also Box 5). - Transaction-level disclosure obligations should extend to SOEs because their debt obligations may ultimately result in fiscal liabilities to the sovereign (Maslen and Aslan, 2022). - Where confidentiality clauses legitimately limit disclosure, information can be presented at a higher level of aggregation. - Debt data validation and reconciliation of granular data are essential features of the business process in public debt management. - Cross-validation of debtor and creditor data at a granular level would: - help identify and address data gaps, - increase data accuracy and consistency, - limit operational risks, - bolster confidence in data, and - promote shared responsibility between borrower and creditor for data transparency. - Where significant data gaps are identified, comprehensive data reconciliation of borrower and creditor records should be undertaken to reflect the level of indebtedness more accurately. - Progress in granular disclosure may incentivize more country participation to level up to best practices. ### Legal, contractual, and systemic reform considerations - Use of templates for transaction-level information as schedules to loan agreements would need to be supported by legal reforms. - Contractual obligations are piecemeal and may not be as effective as a uniform statutory standard. - Capacity constraints must be evaluated to clarify alignment of new disclosure requirements with existing ones. - To prevent circumvention (recourse to unregulated debt instruments), granular reporting must be placed within the broader framework and principles of the Revised Guidelines for Public Debt Management and the IMF’s FTC, potentially addressing non-debt liabilities, fiscal risks, and debt-related contingent liabilities in public sector balance sheets. ### Costs, implementation challenges, and technological enablers - Efforts to disclose and reconcile high granularity public debt data would entail costs and present implementation challenges. - Maximum granularity could be encouraged if prevalent in jurisdictions and/or required by constitutional or domestic legal frameworks as part of transparency and accountability mechanisms. - Reporting burden for debtors and creditors may increase, potentially leading to duplication or inconsistencies with existing reporting systems. - Concerns about reporting burden are mitigated by widespread digitalization of public debt records: - More than 70 percent of EMDEs use either UNCTAD’s or the Commonwealth Secretariat’s debt management and recording systems, both of which offer automated capabilities to submit loan-level information to the World Bank’s DRS. - Creating a new platform for data storage, arbitration of differences, and dissemination would be costly and, if voluntary, may be limited in effectiveness unless accompanied by sufficient incentives. - Countries may initiate time-consuming changes in domestic legal frameworks to shield themselves from legal challenges related to more stringent disclosure requirements. ### Operational proposals and alternatives - The proposed ILR would help reduce errors in manual entries in borrower debt recording systems and automate the reporting of reconciled data (Box 3), but would require complex institutional arrangements to operationalize and sustain. - An alternative solution is to extend online access by respective creditors through their financial management information systems to sovereign borrowers, providing a real-time view of sovereign debt liabilities and related transactions. ### Transparency in debt restructurings - Transparency of debt restructuring operations could be increased to potentially result in faster resolution of sovereign debt restructuring. - Enhanced clarity is needed on different steps and timelines in the Common Framework (CF) process, including enforcement of comparability of treatment between creditors. - The Global Sovereign Debt Roundtable agreed on the importance of urgently improving information sharing including on macroeconomic projections and debt sustainability assessments at an early stage of the process (IMF, 2023a). - Disclosure of terms of official bilateral restructurings with non-Paris Club creditors would contribute to collaborative creditor solutions to put debt on a firmly sustainable path. ### Potential Fund contribution — advocacy and coordination - Advocacy and coordination of granular data disclosure: - Build on Fund collaboration with the World Bank, COMSEC, and UNCTAD as part of the technical working group on improving the WB DRS template, methodology, and electronic reporting template. - Fund staff could contribute to the design of a standardized template for direct reporting by LICs of loan-level information automatically generated by COMSEC’s Meridian and UNCTAD’s DMFAS. - The Fund can advocate for creditor data disclosure and promote alignment of data reporting templates to a common standard across creditor reporting initiatives (Paris Club, G20 Operational Guidelines, OECD DTI) so creditor publications match debtor granularity. ### Potential Fund contribution — capacity development and user guidance - Capacity development: - Scope to improve quality of loan-by-loan data through capacity development (Box 4). - Main data gaps: instrument classification and sectorization (external vs. domestic), data inconsistencies, country and data coverage issues. - Interagency cooperation (Ministry of Finance and Central Bank) can be addressed through Fund TA missions by promoting data sharing procedures and developing data consistency among datasets. - Helping stakeholders navigate existing public debt databases: - Until comprehensive and reliable loan-level information becomes publicly available, the Fund can leverage statistical expertise to help data users navigate the fragmented universe of aggregate public debt data databases by listing main databases on a single webpage and explaining different characteristics (see Chapter III in accompanying Background Paper). - IMF Data Standards Initiatives: - Over the medium term, the Fund’s global data transparency framework, the Data Standards Initiatives, could be further enhanced to introduce more granular public debt data into the framework, in addition to those introduced in the Tenth Review of IMF Data Standards Initiatives (as also anticipated in the latter). ### Box 4 — Strengthening Loan-by-Loan Transparency (summary) - IMF could help countries strengthen loan-by-loan transparency through targeted CD. - Enhanced loan-by-loan transparency requires systems and procedures for recording, compiling, and timely dissemination of public debt data and all relevant terms of public debt contracts. - Jointly with the World Bank, the IMF could provide CD aimed at ensuring greater consistency with macroeconomic statistics and international statistical guidelines. - Two types of CD engagement: - Technical assistance: IMF (in coordination with World Bank) could provide guidelines for data collection and clarify methodology (instrument classification, sectorization, treatment of publicly guaranteed debt). - Workshops/training: Expand training courses to include loan-by-loan compilation practices and joint workshops to improve consistency between micro- and macro-level data, convening countries, international partners, and software developers. - CD to strengthen legislative basis for disclosure should be considered (see Reform Area 1). - CD is demand-driven; delivery cannot be guaranteed to all countries unless Fund policy/mandate changes. - Resource implications: TA missions with a loan-by-loan component would be a new workstream requiring intensive data work, longer or multiple missions, and engagement with multiple agencies. ### Reform Area 4 — Direct incentives from IFIs - IFIs have three basic ways to directly incentivize public debt disclosure: - Evaluations against standards: World Bank’s DeMPAs and IMF Fiscal Transparency Evaluations (FTEs) cover public debt reporting; DeMPAs also cover governance. - Conditionality on adequate public debt disclosure: Fund program conditionality governed by Conditionality Guidelines (parsimony, tailoring, criticality). Examples: Angola and Ecuador used conditionality on disclosure of collateralized public debt characteristics and on loans with collateral-like features. - Direct requirements: Fund policies on surveillance and program can include requirements that support debt transparency (e.g., Data Provision to the Fund for Surveillance Purposes policy, debt sustainability frameworks, Debt Limits Policy). ### Analysis of leverage and gaps - IMF program conditionality can be effective to strengthen transparency but should remain case-by-case per Conditionality Guidelines. - On evaluation frameworks, coverage and coordination need improvement: - World Bank’s DeMPA reports coverage limited mostly to PRGT-eligible countries; many DeMPA reports are not published; no mechanism for sharing such reports with Fund staff. - Proposal: make a template for carve-outs from confidentiality clauses enabling information sharing with the IMF integral to the DeMPA process. - IMF FTE coverage and frequency are limited; need more detailed guidance on best practices in the public debt area. ### Potential Fund contribution — stand-alone public debt transparency assessment (Box 5) - A stand-alone, in-depth public debt transparency assessment program could create impetus for levelling-up to best practices. - Such assessments could be: - carried out by Fund staff on a voluntary basis for countries with presumed publication, or - take the form of self-assessments. - More granular guidance on public debt and related fiscal transparency would be required, incorporating examples from sound country practices and developed by IMF functional departments. - Resource implications: - Estimated cost of USD0.2 million per mission and at least one mission per country requesting such assessment. - Box 5 — Guidance elements to include in assessments: - Public debt data coverage: guidance consistent with IMF’s FTC focusing on data gaps (public sector liabilities beyond central government, SOE and PPP liabilities, loan-level data) and mechanisms to prevent “hidden debt” (coverage of institutions, flows, stocks, internal consistency). - Data comprehensiveness on public debt operations and outcomes: guidance covering contracted and disbursed loan amounts, currency denomination, interest rate, fees and penalties, maturity and grace periods, auction results and secondary market yields of domestic bonds, liability management operations, public debt service payments and projections, governing law, majority restructuring provisions, sovereign immunity waiver, material debt covenants, guarantees, lending operations, and derivatives. - Public debt data consistency: guidance to ensure internal consistency and stock-flow reconciliations. - Public debt governance: assess legal frameworks, institutional arrangements and accountability, legislative oversight, internal controls, granularity of financial statements on public debt liabilities, and auditing debt management specific issues. - Policy orientation: cover public debt management operating frameworks, loan approval and market issuance decision-making, coordination issues (central bank, intra-government borrowing, SOEs), and investor/creditor relations. - Estimated development timeline and costs: - Development of methodology would take about 2 years at a total cost USD0.2 million. - Country missions expected to require 0.22 FTEs per mission at a cost of USD0.2 million per mission per country. - Tabulated preliminary cost schedule (USD Million): - FY24: Debt Transparency Assessments—development of methodology: 0.25 - FY25: Missions: 0.65 - FY26: Missions: 1.0 - (Underlying inputs: 4 FTE for 4 weeks = 0.1 + 50 days STX work = 0.15; STX Work 0.05; Missions: 3 missions – 0.6; 5 missions – 1.0) ### Conclusion and key findings - Public debt transparency contributes to macroeconomic stability and inclusive growth by enhancing the efficiency of public debt management and global capital allocation. Empirical evidence supports the positive effect that public debt and broader data transparency has on sovereign financing conditions. - There is significant space for improvement in debt transparency: - Debt disclosure gaps in borrowing LIDCs and EMs are large, as the share of non-marketable debt and SOEs’ role in the economy is greater than in advanced economies and accounting and reporting practices are less developed. - Governance gaps in borrowers’ domestic legal, institutional, and operational frameworks and capacity limitations hinder public debt transparency. - Self-assessments by many G20 creditors suggest lending practices are generally sound, but information-sharing and transparency remain key areas for improvement. - Implementation of the MPA has led to significant efforts supporting debt transparency (review of analytical tools, capacity development, debt management assessments, setting international standards and codes, supporting creditors’ efforts). - Public debt transparency-related CD accounted for about USD11 million in FY22, with a significant increase in related CD missions expected over the next few years. *Source: ppea2023034 - Chapter section on public debt disclosure and transparency (excerpts).* ### 74. A number of reform areas have been identified by staff, where actions by creditors, ### MAKING PUBLIC DEBT PUBLIC—ONGOING INITIATIVES AND REFORM OPTIONS ### Identified reform areas to advance debt transparency - Strengthening domestic legal frameworks for public debt, including borrowing authorization, reporting, and related accountability mechanisms. - Standardizing clauses that promote transparency in public debt contracts. - Putting in place frameworks for disclosure and reconciliation of loan-level information by borrowers and creditors. - Introducing direct incentives from IFIs. - All these reform areas have pros and cons, and a careful implementation based on more detailed analysis preferably within the subsequent MPA updates will be required to mitigate potential adverse consequences while ripping their benefits. ### IMF-specific actions to contribute to reforms - Supporting countries through CD in debt transparency areas (especially related to legal and institutional frameworks, and loan-level disclosure). - Promoting standardized disclosure clauses in debt contracts. - Using tailored conditionality related to debt transparency in line with the Conditionality Guidelines. - Providing in-depth public debt transparency assessments. - Note: These actions fit well within the MPA’s objectives under the debt-transparency pillar but are not contemplated under the ongoing work and would require time and significant additional resources. - Substantial progress in ongoing initiatives within the MPA agenda over the next five years already requires an increase in resources. - Actions in the reform areas discussed above would need to be considered together with other Fund priorities as part of the budget process. - The effectiveness of resources allocated to CD in debt transparency versus other areas needs to be assessed. - Although closing capacity gaps has advanced debt transparency in some cases, there have been failures too that partly reflect the impact of adverse incentives. ### Implementation considerations and pacing - While past efforts to support debt transparency have allowed for some progress, concrete achievements will take time and resources. - Progress will require steadfast commitments on the part of creditors and debtors and the supporting CD providers. ### Issues for discussion (as presented) - Do Directors agree with the defined scope of the public debt transparency agenda and its relevance for the Fund mandate? - Do Directors concur with the main findings on borrower and creditor debt transparency practices and the identified legislative, process, and data gaps? - Do Directors agree with staff’s assessment of new initiatives to enhance public debt transparency? - Do Directors consider that the following operational recommendations would advance the Fund’s public debt transparency agenda and that they would need to be considered together with other Fund priorities as part of the budget process, given significant additional resources required: - Continue work on ongoing initiatives under the Multipronged Approach to addressing public debt vulnerabilities; - More/deeper CD on strengthening the legal framework and loan-level disclosure by borrowers and creditors; - Use of the Fund convening powers to build consensus on standardized confidentiality clauses, closer collaboration on reconciliation of public debt data provided by creditors and borrowers, and development of practical solutions for loan-level disclosure by borrowers; - Use of tailored conditionality, where macro critical, and transparency assessments as tools to strengthen transparency practices. *International Monetary Fund — excerpt from pp. 40–41 of the chapter "MAKING PUBLIC DEBT PUBLIC—ONGOING INITIATIVES AND REFORM OPTIONS"* --- _Source: https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023034.pdf_