11 countries indulge in resource-backed loans in SSA
Clara Nwachukwu
The World Bank Group, again yesterday, raised an alarm over what it described as “massive gaps in debt-tracking system,” warning that “inconsistent reporting poses additional risk for the poorest countries.
These gaps make it harder to assess debt sustainability and for over-indebted countries to restructure debt promptly and generate a durable economic recovery, according to a new World Bank report, titled: Debt Transparency in Developing Economies.
The warming comes amid rising sovereign national debt and opaque operations among low income countries, especially in sub-Saharan Africa (SSA), where 11 other countries indulged in resource-backed loans between 2004 and 2018.
The World Bank noted that: “At a time when sovereign debt in the poorest countries has surged to dangerously high levels, global and country-by-country systems for tracking it are proving to be inadequate.”
Commenting on the new Debt Transparency in Developing Economies report, the World Bank Group President, David Malpass, said: “The poorest countries will emerge from the COVID-19 pandemic with the largest debt burdens in the last few decades, but limited debt transparency will delay critical debt reconciliation and restructuring.”
He argued that “Improving debt transparency requires a sound public debt-management legal framework, integrated debt recording and management systems, and improvements in the global debt monitoring. International financial institutions, debtors, creditors, and other stakeholders, such as credit-rating agencies and civil society, all have a key role to play in fostering debt transparency.”
Monitoring sovereign debt
According to the World Bank, the report marks the first comprehensive assessment of the global and national systems for monitoring sovereign debt.
“It finds that debt surveillance today depends on a patchwork of databases with different standards and definitions and different degrees of reliability, cobbled together by various organizations.
“Such inconsistencies lead to large variations in publicly available tallies of debt in low-income economies—the equivalent of as much as 30% of a country’s gross domestic product (GDP), in some instances,” the Bank said.
For instance, in Nigeria, one of the low income countries, the Debt Management Office (DMO), constantly defends the Federal Government’s unending borrowing, saying the country remains in good standing to accumulate debts.
To allay fears and douse tension, the Director-General, DMO, Ms Patience Oniha, had put Nigeria’s debt-to-GDP ratio at about 22% as at the end of the second quarter (Q2) 2021 with total debt stock at N35.46 trillion.
However, dismissing any comfort from the government’s estimates, the International Monetary Fund (IMF), projects that Nigeria’s debt-to-GDP ratio at the rate at which it keeps borrowing could catapult to 35.7% by the year-end and skyrocket to about 42% by 2026.
Improving debt transparency requires a sound public debt-management legal framework, integrated debt recording and management systems, and improvements in global debt monitoring.
Report findings
Breaking down the findings in a video monitored by Sustainable Economy, Senior Debt Specialist, World Bank Group and Lead Author, Diego Rivetti, expressed concern that “Nearly 40% of low income countries have not disclosed any debt data to their own citizens in two years.”
According to Rivetti, the report traced some of the opaque operations to the fact that 11 countries in Africa were found with debt that is collateralised by their natural resources.
“That amounted to nearly 10% of all new borrowing in sub-Saharan Africa between 2004 and 2018. Yet, no country reports collateralisation details,” he said. “Even the existence of this debt is often not disclosed because these are instruments that are not systematically recognised and classified as debt.”
He added that even “when available, debt statistics tend to cover only central government loans and securities, omitting either public sector components or debt instruments.”
He attributed this lack of transparency to “week legal and operational frameworks.”
Additional challenge is the non-enforceable international statistics and accounting standards, which the report notes results in a very convoluted reporting system, where different definitions, coverage and evaluation methods are used.
There is also the challenge of non-tradable external debt, which includes “loans that may get privately restructured or Central Bank operations that are used to facilitate external borrowing rather than complement monetary policy.”
Policy recommendations
In view of the current challenges in tracking sovereign debt, Rivetti said the report outlines policy reforms to address them through the World Bank Debt HeatMaps, which addresses all the concerned parties – borrowers, creditors and international financiers.
Borrowers – invest in capacity and systems to produce good debt data, thus reducing the need for ad-hoc reporting to external agents.
Reform the legal framework to make it conducive to transparency, for instance, by defining public debt according to international standards, specifying the borrowing authority, or requiring regular audits.
Creditors – limit the scope of confidentiality clauses and refrain from those that require secrecy.
Publish granular information on the sovereign lending portfolio, as encouraged by the G20 Operational Guidelines for Sustainable Financing.
International financiers – streamline and consolidate data-collection processes and resulting databases.
Provide a regular assessment of countries’ adherence to international statistical and accounting standards.
Rivetti concluded by noting that debt transparency requires broad international consensus and commitment by all parties, in order to strengthen the ability to manage and prevent future debt crises.
