The World Bank in its latest report has commended Nigeria’s debt reporting citing that 40 per cent of low-income developing countries (LIDCs) have not published transparent sovereign debt data in the last two years with the exemption of Nigeria.
In its latest report on ‘Debt Transparency in Developing Economies’ where it states that most LIDCs have hidden debts by way of publishing it in a concealed format thereby creating hidden debts, adding that most public debt data are not systematically published in Sub-Saharan Africa and that loans and securities are typically covered.
It also noted that extending sectoral coverage remains a challenge and that total stock of central government guarantees is usually reported, but beneficiaries are rarely mentioned.
On Nigeria, the report stated: “Expenditure arrears are typically excluded from domestic debt statistics with very few exceptions e.g., Nigeria’s federal government, expenditure arrears are not included in the debt stocks. This reflects one of the key differences between the cash-based frameworks largely applied in LIDCs and accrual-based ones.
“A 2019 IMF report showed that at least 70 per cent of countries in Sub-Saharan Africa had domestic expenditure arrears in 2018, amounting to an average of about 3 per cent of GDP, with arrears to private suppliers accounting for the largest share. A subsequent report by the World Bank showed that arrears are expected to increase by more than 2 per cent on average as a consequence of the COVID-19 pandemic.”
It noted that there is ample room for improvement when publishing key debt-management documents. Medium-term Debt Strategies (MTDS) and Annual Borrowing Plans (ABP) should guide future borrowing and provide key references to investors and stakeholders.
Forty five per cent of the International Development Association (IDA) countries publish a debt-management strategy; however, the MTDS is translated into a comprehensive ABP only in 9 countries.
The report further stated: “Public debt data are not systematically published or updated, particularly in Sub-Saharan Africa and small states. Both the 2019 and 2020 assessments show that close to 40 percent of LIDCs did not reach minimum data disclosure standards as defined by the methodology, either because they have never published any debt data, or because their debt data are more than two years old.”
Commenting on this report, Group President World Bank, Mr. 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.
“Improving debt transparency requires a sound public debt-management legal framework, integrated debt recording and management systems, and improvements in 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.”
The study finds that 40 percent of low-income countries have not published any data about their sovereign debt for more than two years and that many of those that do publish it tend to limit the information to central government debt.
“Many developing countries are relying increasingly on resource-backed loans in which governments secure financing by putting up future revenue streams as collateral. Resource-backed loans accounted for nearly 10 percent of new borrowing in Sub-Saharan Africa between 2004 and 2018. More than 15 countries have such debt, but none provide details on the collateral arrangements.”
He added: “Central banks are also using monetary-policy tools, such as repos and swaps, to facilitate government borrowing from foreign creditors. But such borrowing is neither clearly identified in the central banks’ balance sheets nor captured in the databases of international financial institutions. Domestic debt markets in the poorest economies are also opaque: the report finds that just 41 percent of these economies use market-based auctions as the main channel to issue domestic debt. And those that use auctions divulge only spotty information to investors.”
He further added that the World Bank Group has long considered debt transparency a crucial step in countries’ development process, because transparency facilitates new investments, improves accountability, and helps reduce corruption.
“The bank’s global debtor reporting system remains the single most important source of verifiable information on the external debt of low- and middle-income countries. All countries that borrow from the World Bank more than 100 are required to report details of external debt owed by any public agency.
Also, the World Bank’s Sustainable Development Finance Policy (SDFP) incentivizes IDA-eligible countries to implement concrete performance and policy actions (PPAs) to enhance debt transparency, fiscal sustainability, and debt management,” he added.