• Explicitly state in contracts the right of borrowers to share detailed information about public debt transactions.
• Codify debt-transparency requirements into national law.
• Confidentiality clauses in public debt are inserted by sophisticated actors.
World Bank says Chad and Zambia’s debt restructuring negotiations were delayed when their respective debt offices couldn’t produce current and complete records of what was owed and to whom.
World Bank Global Director, Macroeconomics, Trade & Investment Marcello Estevão further explains that hidden debt prevents borrowers and lenders from making informed and responsible financing decisions beyond its potential to delay restructuring talks or even send an economy into tailspin as it also crops up far too frequently and often during or just before a crisis.
Mr. Estevão urged policy makers to explicitly state in contracts the right of borrowers to share detailed information about public debt transactions with the World Bank and International Monetary Fund and refrain from using confidentiality clauses in order for them to create a better way for borrowers and lenders focus.
“Should market conditions deteriorate and credit relief become necessary, transparency also facilitates effective debt assessments by avoiding “hidden” and “surprise” debt and fostering efficient restructuring,” said Estevão.
He added the need for Policy makers to codify debt-transparency requirements into national law and ensure that debt disclosure is sufficiently detailed to allow lenders, analysts, and the public to scrutinize government actions.
Estevão narrated that with several emerging market and developing economies facing the very real prospect of not being able to service their debt in the coming 12 months or so, a “hidden debt surprise” could compound an already complicated situation and hinder efforts to assist these vulnerable countries.
He explained that Confidentiality clauses are not solely responsible for hidden debt seeing in some cases, hidden debt crops up because of a lack of state capacity to adequately track debt obligations. But confidentiality clauses in public debt are inserted by sophisticated actors.
According to him, “foregoing them will not end the problem of hidden debt, but it will go a long way toward steering countries in a more transparent and financially optimized direction.”