Most developing countries have failed to collect sufficient revenues to finance their national budgets, hence have had to rely on borrowing to finance their development and maintain other spending commitments. As a result, there has been an exponential rise in public debt stocks, especially in Sub-Saharan Africa over the past 10 years. According to a new International Debt Statistics 2022 report published by the World Bank, the debt burden of the world's low-income countries rose by 12% to a record $860 billion in 2020. For instance, in Kenya, the Central Bank reported that the country's public debt stock stood at Ksh.8 trillion which is about 68.2% of its nominal GDP as of September 2021.

Economists and development practitioners have demonstrated that the unprecedented trend in public debt acquisition has had negative implications on the economy. It exacerbates poverty and inequality, and limits broad-based and sustainable development as witnessed in many Sub-Saharan African countries. Essentially, debt repayment diverts funds from social services and key public investments and may lead the government to implement unfair tax policies to meet debt repayment revenue demands. Domestic borrowing also crowds out private sector borrowing, thus hampering investment and output growth. 

Relationship between public debt and economic growth

Cognizant of these consequences, there is thus a need for openness and public scrutiny of the conduct of public debt policy decisions taken by the government and accountability for expenditures of resources obtained through debt mechanisms. This requires greater debt transparency that guarantees access to credible information on debt. Adequate and reliable data on public debt is important because it allows policymakers to make informed decisions about future borrowing with an accurate understanding of the cost and risks of the existing debt portfolio. It also enables creditors and rating agencies to understand borrowers' debt sustainability challenges, accurately price debt instruments and estimate comparability of treatment in the event of debt restructuring. Furthermore, the citizens can use the information on public debt to hold their governments to account for the debt they take on, thereby facilitating better governance, increasing accountability, and helping to counter corruption. 

However, with the rising public debt levels and the emerging role of non-traditional lenders, serious concerns have been raised about debt transparency in many developing countries. Debt statistics and reporting remains incomplete or non-comprehensive. In many instances, debt agreements have included confidentiality clauses, which limit overall debt transparency. A report by the World Bank highlights that close to 40% of low-income developing countries had never published data on debt or had never updated the information in the last two years as of November 2021. 

Several factors hinder countries from compiling and reporting comprehensive data on public debt. Capacity constraints arise as a major hindrance in ensuring an efficient debt data reporting system. It limits the ability of low-income developing countries to report comprehensive public debt data. Human resources and IT infrastructure are inadequate, thus constraining the capacity to collect, compile and disseminate debt statistics. Considering that other development objectives are prioritized more than higher-quality statistics, investing in statistical capacity is difficult to achieve. Debt management offices have insufficient ability to collect debt information, limiting data collection to only the central government. Moreover, governments may not have the adequate legal capacity to evaluate loan contracts appropriately. 

Secondly, the definition of public debt under national laws in many jurisdictions in the developing world is sometimes unclear. Legislations define public sector debt coverage narrowly, meaning debt compilers do not have the legal mandate to collect debt statistics from broader public agencies. For instance, in some jurisdictions, the definition of public debt only covers central government without incorporating debts accrued by outside entities such as public corporations. Because of differing definitions of debt and recording errors, debt data available often show variations equivalent to almost 30% of a country's GDP. 

Thirdly, weak administrative and political governance often hinder proper debt recording, monitoring, and reporting. Sometimes, senior administrators and political managers lack the incentive to produce correct debt statistics because there is a lack of demand for reliable, timely, and comprehensive data, limited public scrutiny, and limited integration with other public finance management systems. Some governments have also chosen not to disclose public debt data to maintain confidentiality around politically sensitive issues, such as security investments or access to natural resources. An opaque debt environment provides an opportunity for government operatives to obtain personal gains. This is further complicated by the fact that audit of debt management operations is rare in developing countries. These undermine efforts at national levels to pursue more comprehensive debt statistics coverage, adopt modern IT infrastructure, and strengthen legal backing with strong enforcement mechanisms in the event of noncompliance. 

Also, due to domestic interest, often motivated by political objectives, some borrowing countries have chosen to hide the true extent of indebtedness or the collateral granted to selected creditors to avoid a higher debt cost in the short term. For example, a leaked report from the auditor general in 2018 sparked rumors that Kenya had staked the port of Mombasa as collateral for the Chinese-funded Standard Gauge Railway project. Debtors may also be impelled to circumvent policies that may impact borrowing costs or loan availability, such as fiscal rules and borrowing limits. On the other hand, lenders may conceal crucial data to acquire borrowers' favor to facilitate lending operations or promote broader business/politically strategic objectives. Lenders also try to avoid disclosing financial or legal terms to competitors, hence the need to keep lending terms secret. 

Investments in debt data transparency enhance improvements in accountability within debt management practices. This brings benefits in the long run, including reductions in the costs of credit. A study by OECD on Emerging Market Risks and Sovereign Credit Ratings showed that transparent debt management practices result in higher credit ratings and stronger investor appetite (investors prefer investing in countries where they know the stock and composition of debt), ultimately reducing the cost of external borrowing. On the contrary, low levels of debt data disclosure may lead to debt mispricing and/or significant fiscal and debt rollover risks. In Zambia, for example, the uncertainty around public debt coverage and lags in reporting led to speculation around the true level of indebtedness and a sharp increase in bond yields. In 2016, the discovered state-backed "hidden loans" that were not approved by parliament halted Mozambique's development progress. These loans breached the International Monetary Fund Program at that time. Consequently, the IMF and other development partners outrightly suspended budget support. 

Transparency in debt management also forms an integral component of governments’ efforts to restructure debt. When negotiating debt restructuring, lenders require accurate information on the size and composition of the borrowers' debt portfolio and the level of debt relief needed to restore debt sustainability. The absence of accurate and comprehensive data delays debt restructuring since reconciliation has to be undertaken between debtor and creditor records. 

Accountable sustainable public debt management can help a country maintain sovereignty over domestic infrastructure and natural resources. Some countries have had to make steep concessions or cede control of their resources to creditors like China because of non-transparent loan repayment obligations. Sri Lanka, for example, had to surrender its strategic port to Beijing in 2017 after it failed to pay off its debt to Chinese companies. 

Port of Hambantota, Sri Lanka

Ultimately, adequate, accurate, and accessible data on public debt has a critical role in promoting accountable and prudent public debt management. This can help prevent debt crises (and economic hardships that may come with them) and facilitate effective use of resources obtained through public debt mechanisms. The lack of credible information on debt obligations makes it difficult for international financial institutions to accurately estimate countries' debt burdens, provide recommendations to limit debt distress, and determine appropriate debt amelioration solutions. For non-state actors like Civil Society, media, and experts, challenges related to access to public debt data limit their ability to analyze, scrutinize and report on debt situations in their respective jurisdictions. This hampers transparency and accountability for public debt policy decisions taken by governments. It also limits the inclusion of alternative ideas, voices, and aspirations of citizens on whose behalf debt is acquired, and who bear the responsibility for repaying debt.

Cognizant of these challenges and dynamics, governments must be challenged to make information on public debt available to the public to facilitate scrutiny and enhance good governance and accountability. Lenders must also be brought to account for under-dealings that limit public knowledge and conceal information on debt agreements they sign with recipient governments. They must be encouraged to avail information where recipient governments fail to promote transparency. Civil society can help improve public understanding of debt issues by conducting public education and advocating for more debt transparency. This can include public litigation to compel the government to make public debt information available. Academia and experts can also play a role in conducting diagnostic studies, research, and analysis of debt situations and their implications for economic development, fiscal justice, and overall sustainability.