World Bank urges 'radical' debt transparency for developing countries

"When hidden debt surfaces, financing dries up and terms worsen," World Bank senior managing director Axel van Trotsenburg says

FILE PHOTO: World Bank Senior Managing Director Axel Van Trotsenburg speaks during an interview with Reuters at the annual meeting of the International Monetary Fund and the World Bank, in Marrakech, Morocco Oct 9, 2023. REUTERS/Susana Vera/File Photo

The World Bank is urging "radical" debt transparency for developing countries and their lenders to stave off future crises, it said in a report released on Friday.

The Bank wants to broaden the depth and detail of what sovereign countries disclose regarding new loans, as more of them enter complex, off-budget borrowing deals due to global market turmoil.

"When hidden debt surfaces, financing dries up and terms worsen," World Bank senior managing director Axel van Trotsenburg said in a statement, adding: "Radical debt transparency, which makes timely and reliable information accessible, is fundamental to break the cycle."

The Bank wants countries to make legal and regulatory reforms that mandate transparency when signing new loan contracts and to share more granular debt data.

It also wants more regular audits, the public release of debt restructuring terms, and for creditors to open their loan and guarantee books.

It is calling for better tools for international financial institutions to detect misreporting.

The World Bank and other multilateral banks have been pressing for years to improve lending transparency. The proportion of low-income countries reporting some debt data is now above 75%, up from below 60% in 2020.

But only 25% of them disclose loan-level information. As financing costs spike due to trade wars and geopolitical risk, more countries are using arrangements such as central bank swaps and collateralized transactions that complicate reporting.

Senegal has used private debt placements as it negotiates with the International Monetary Fund over misreporting of its previous debts, and Cameroon and Gabon have also used what are known as "off-screen" deals.

Angola recently had to pay a $200-million margin call after a rout in its bond prices. In Nigeria, the central bank disclosed in early 2023 that billions of U.S. dollars of its foreign exchange reserves were tied up in complex financial contracts negotiated by the previous leadership.

The Bank said broader loan coverage and deeper loan-by-loan disclosures would enable the international community to fully assess public debt exposure.