By Agencies

The World Bank has issued a strong call for “radical” debt transparency among developing countries and their lenders to prevent future financial crises, as highlighted in a report released on Friday.

The Bank emphasizes the need for more comprehensive disclosures from sovereign nations regarding new loans, especially as many are now resorting to complex, off-budget borrowing arrangements amidst global market instability.

“When hidden debt comes to light, funding diminishes and terms become less favorable,” said Axel van Trotsenburg, the World Bank’s senior managing director.

He stressed that “radical debt transparency, which provides timely and reliable information, is crucial to breaking this cycle.”

Key recommendations from the Bank include legal and regulatory reforms that require transparency when entering new loan contracts, as well as more detailed reporting on debt data.

They also advocate for regular audits, public disclosure of debt restructuring terms, and for creditors to reveal their loan and guarantee records. Additionally, the World Bank is urging improved tools for international financial institutions to identify misreporting.

For years, the World Bank and other multilateral banks have pushed for greater lending transparency.

Currently, over 75% of low-income countries report some debt data, a significant increase from below 60% in 2020. However, only 25% of these countries provide loan-level information.

As financing costs rise due to trade tensions and geopolitical risks, many nations are turning to complicated arrangements like central bank swaps and collateralized transactions, which complicate reporting.

For instance, Senegal has engaged in private debt placements while negotiating with the International Monetary Fund over previous misreporting. Similarly, Cameroon and Gabon have utilized so-called “off-screen” deals.

Recently, Angola faced a $200 million margin call following a drop in its bond prices, and Nigeria’s central bank revealed in early 2023 that billions of U.S. dollars in foreign exchange reserves were entangled in complex financial contracts negotiated by the previous administration.

The World Bank asserts that enhanced loan coverage and thorough loan-by-loan disclosures are essential for the international community to fully understand public debt exposure.