The world needs radical debt transparency

Over the past two decades, many developing countries have made remarkable progress in reducing poverty, expanding access to education and health care, and investing in infrastructure. These gains were the result of sound national policies and coordinated efforts by the international community, often financed through responsible borrowing.

But the road ahead looks more precarious. Debt vulnerabilities are rising:  54 percent of low-income countries are already in or at high risk of debt distress, and many are spending more on debt repayments than on education, health care, and infrastructure combined. Access to affordable financing is shrinking, and repeated external shocks, from commodity price swings to climate-driven disasters, are compounding the risks.

The world has faced similar challenges before. At the turn of the millennium, global cooperation delivered major breakthroughs like the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative, which freed dozens of low-income countries from unsustainable debt burdens. But the debt landscape has fundamentally changed since then. Today, debt is more complex, creditors are more diverse, and part of the borrowing takes place off-budget, behind closed doors, and outside the scrutiny of traditional oversight mechanisms.

In response, the international community has taken some important steps to address this brewing crisis. The World Bank Group and the International Monetary Fund provide countries facing debt pressures with increased financing, technical support, and, in some cases, liability management operations. When an economy’s debt-service burden becomes unsustainable, the G20’s Common Framework offers a path forward, a process that many are working to make faster and more predictable, including through building consensus at the Global Sovereign Debt Roundtable.

While we have seen progress on debt relief, much more needs to be done. The first and most powerful line of defense against debt vulnerabilities is improved debt transparency. The world too often learns of unsustainable debt burdens when economies are already in free fall. For example, several countries regained access to international capital markets in recent years, only for hidden debts to surface and send them into crisis.

Without urgent action to contain these risks, future debt crises will stem not only from economic misfortune, but also from undisclosed, misunderstood, or deliberately obscured obligations. That is why the World Bank’s Radical Debt Transparency report calls on borrowers, creditors, and the global financial community to shift from opaque practices to full and timely debt disclosure.

There has been some progress. Since 2020, the share of low-income countries publishing some debt data has risen from below 60 percent to more than 75 percent. But only 25 percent disclose loan-level information on newly contracted debt. And too often, debt data is partial, delayed, and inconsistent.

These gaps in reporting will become even more challenging as public-sector borrowing moves outside central government control, and as more countries turn to unconventional, off-budget financing, including private placements, central-bank swaps, and collateralized transactions. Domestic debt is also on the rise, but many countries lack the disclosure standards and market-based mechanisms to manage it responsibly. 

As a result, true liabilities are obscured, hiding debt risks and undermining the credibility of debt sustainability. Making matters worse, partial and confidential restructurings–done privately, with select creditors–are becoming more frequent, depriving markets of crucial information and forestalling durable solutions. That is why we need bold, coordinated global action. Borrowers, official and private creditors, and international institutions must work together to close the transparency gap.

Our report outlines measures that would create a more transparent debt landscape: Full disclosure of lending terms; stronger national oversight of all debt, particularly collateralized and non-market-based instruments; and improved tools for international financial institutions to report more granular debt data and detect misreporting. It also urges all creditors to open their loan and guarantee books, engage in joint data-reconciliation processes, and publish debt restructuring terms once agreements are reached.

Technological tools can help achieve these goals: A joint digital platform for borrowers and creditors could strengthen accountability by standardizing debt-recording practices, supporting comprehensive and timely reporting, and flagging discrepancies early. But technology alone cannot guarantee success. Countries must also strengthen their own capacity to evaluate and negotiate complex debt deals, so that they no longer need to rely solely on creditors or financial intermediaries for advice.

Ultimately, debt transparency is about rebuilding trust and confidence among investors, making them more likely to commit the capital required to drive growth and create jobs in low-income countries. If we are serious about protecting development gains, and preventing another lost decade, radical debt transparency is no longer optional. It is our strongest safeguard against turbulence and our clearest path to resilience.

This article was originally published on Project Syndicate.