The International Monetary Fund (IMF) is ringing a “bell” for international economies, because of the “hidden” debt that is accumulating, now posing a risk to their viability.
In general, the IMF has repeatedly emphasized the need to address record global public debt. However, in his latest report he points to another factor, saying, “hidden debt is borrowing for which a government is responsible, but which is not disclosed to its citizens or other creditors.”
While this debt, “often kept off the official government balance sheet, is very real, reaching 1 trillion. dollars worldwide according to some estimates.”
According to the report, “while these undisclosed liabilities are not large compared to the global public debt of more than $91 trillion. dollars, are a growing threat to low-income countries, which are already heavily indebted with annual refinancing needs that have tripled in recent years.”
As the Fund warns, “the problem is even more pressing amid higher interest rates and weaker economic growth. Accountability is also at risk without accurate information about the extent of borrowing, which increases the risk of corruption.”
The report expressed the belief that these potentially disastrous consequences can be avoided by strengthening national legal frameworks, as shown by the findings of a survey of 60 countries that examined vulnerabilities and loopholes in national laws that hinder transparency.
“Our new research shows that less than half of the countries surveyed have laws requiring debt management and financial reporting, while less than a quarter require the disclosure of loan-level information – key legal features to facilitate transparency.
“We also identified four notable vulnerabilities in national legislation that allow debt to be hidden: a narrow definition of public debt, insufficient legal requirements for their disclosure, confidentiality clauses in public debt contracts and ineffective supervision.”
The report states that, “around the world, legal requirements for debt disclosure are inadequate. A strong legal basis is vital to signal that there is a clear requirement to report on debt in a way that is both timely and relevant to policy analysis, transparency and accountability.”
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