Debt transparency is fundamental to promoting sustainable borrowing and lending practices and to lowering borrowing costs by reducing uncertainty for investors and supporting market confidence. Debt transparency also enables effective fiscal management by providing a complete representation of government’s outstanding debt and contingent liabilities. It informs debt restructuring processes and supports accountability for the use of public resources. While there have been advances in this field across countries (e.g., strengthened reporting of debt management operations and broadened scope of public debt data disclosure beyond the central government), critical gaps remain (e.g., disclosure of contingent liabilities, lack of public debt audits, fragmentation responsibilities and uncoordinated institutional arrangements for public debt monitoring and reporting). Importantly, the pandemic has exacerbated pre-existing debt vulnerabilities, particularly in low-income and developing countries, increasing the urgency to strengthen debt transparency.
To help address these issues, the IMF’s Legal Department (LEG), in collaboration with the Africa Training Institute, delivered its first debt transparency training course entitled “Legal Foundations of Public Debt Transparency: Aligning the Law with Good Practices” in December 2021. The course builds on several key international initiatives to address sovereign debt vulnerabilities, including the G-20 Debt Service Suspension Initiative (DSSI) and the Common Framework for Debt Treatments. The course was designed to present multi-faceted and complex legal issues with domestic legal frameworks which may hinder debt transparency efforts. Among these are:
- nonexistent or weak reporting requirements for public debt and contingent liabilities,
- shortcomings in the legal definition of public debt,
- narrow institutional and/or debt instrument coverage provided by law,
- legal classification of public sector entities which are misaligned with international standards,
- unclear or ambiguous borrowing powers; obscure delegation processes,
- inadequate governance arrangements for debt monitoring, consolidation and disclosure,
- broad confidentiality contractual clauses without appropriate safeguards that limit abusive use, and
- deficient accountability mechanisms.
Fifty-two senior government officials from 32 sub-Saharan Africa (SSA) countries participated in the course which was delivered in English, French and Portuguese. Participants included representatives of President’s or Prime Minister’s Offices, Ministries of Finance, central banks, state audit institutions, debt management offices and other institutions involved in the drafting of legislation or legal aspects of public debt policymaking. Half of the participants were women and more than a third were from fragile states.
A roundtable with experts from the Monetary and Capital Markets, Fiscal Affairs and Statistics Departments discussed broader efforts at the IMF to support transparency for public debt and contingent liabilities, including strengthening the capacity of public debt management, assessment tools for identifying and managing debt vulnerabilities and fiscal risks, such as contingent liabilities and data standard initiatives. Professor Anna Gelpern from Georgetown University Law Center, as a guest speaker, discussed debt authorization, disclosure requirements and enforcement issues, including how to align incentives for both borrowers (mitigating risks of illegal contracting of debt) and creditors (simplifying due diligence).
An overarching theme raised by participants was the critical importance of debt transparency as a pilar of government accountability . Participants also highlighted the need for disclosure of specific information on the terms and conditions of borrowing at all levels of the public sector. Emphasis was given to the fragmented institutional arrangements for debt monitoring and reporting, including with inadequate definition of roles and responsibilities among Ministries of Finance, Line Ministries, local governments and SOEs. Some participants expressed concerns about the increasing proliferation of entities operating outside budgetary controls, such as extrabudgetary funds and special purpose vehicles, which are posing significant risks for countries, especially when poorly monitored. On-lending legal frameworks are also a significant shortcoming in most jurisdictions, as they lack requirements for risk assessments of the ability of public sector entities to repay on-lent sums. Several participants emphasized the need for more effective enforcement and sanction regimes to address infringements of the legal framework and to prevent future violations.
The course highlighted the IMF’s work on debt transparency and helped to enhance participating countries understanding of the legal dynamics of debt transparency which is especially important in a time when debt vulnerabilities are high and there is a greater demand for accountability.
 Senior Counsel, Legal Department of the IMF and course director.
 Research Assistant, Legal Department of the IMF and lecturer.
 Staff Assistant, Legal Department of the IMF and course coordinator.
 Funds are borrowed by a Government with the aim of lending the funds to public sector entities (e.g., local government, SOEs) to advance policy objectives, such as public investment programs and others. Two distinct agreements arise: i) the direct loan between the creditor (usually the international financial institution or a bilateral official creditor) and the Government, where the Government is the debtor and assumes the debt service under the primary loan agreement; and ii) the on-lent loan between the Government and a public sector entity (beneficiary), where the central government is the creditor and signs a subsidiary loan agreement with the beneficiary.
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