The Quest for Public Debt Transparency in EMDEs HTML File

The Quest for Public Debt Transparency in EMDEs

May 14, 2025

Opening - Scope of the Speech

Good afternoon, everyone. It is a privilege to be here with you. Behind many sovereign debt crises there is often a simple, but difficult truth: the full picture of public debt and contingent liabilities which migrated to sovereign balance sheets was not visible to the public until it was too late. Transparency, therefore, is not just ideal-it is essential.

This Conference demonstrates the Fund's shared commitment to turning transparency from a goal into a reality in our member countries. I want to thank our IMF Legal Department for this timely initiative and inviting me to speak today.

I would like to address the importance of transparency from the vantage point of the markets and the sovereign borrowers-specifically, the debt managers. I'll first address why transparency matters, and why now more than ever. I'll then delve into where countries stand today, the obstacles we face, and some possible solutions. I'll give you a brief tour of how the Fund works to improve transparency in our three core activities of surveillance, lending, and capacity development-and finally, offer some thoughts on the path forward.

The Difficult Backdrop Calls for Greater Transparency

As you have already heard from our IMF Managing Director this morning, ensuring public debt transparency remains critical to monitor debt vulnerabilities, at a time of historically high public debt in emerging market (EM) and developing economies.

The current global environment presents challenges for many countries to access capital markets. EMs are already facing the highest real financing costs in a decade and will have to continue issuing government debt, including meeting new fiscal spending needs. Small middle-income countries and frontier economies face a more difficult situation. Several frontier economies would find it difficult to issue a Eurobond at current levels. Meeting external financing needs will be challenging for many frontier borrowers if official development assistance is reduced. Domestic market funding may not be sufficient to substitute for external borrowing. So, the stakes are high.

Why Transparency Matters

Transparency is foundational-in periods of both calm and stress.

In normal times, it builds credibility and fosters trust. It helps countries reduce borrowing costs and reinforces accountability to a country's citizens. Transparent debt management operations, backed by clear strategies, predictable borrowing plans, and regular reporting pays off in improved market confidence and lower credit risk. Transparency also pays off by providing better access to sovereign debt markets.

Even under sovereign stress, transparency acts as a stabilizing force. Opacity might offer short-term breathing space, but it raises long-term borrowing costs. "Debt surprises" damage trust, increase the cost of borrowing and increase the severity of crises. Conversely, sovereigns that disclose the full picture early-and align this with credible fiscal plans-can stabilize expectations. And at the extreme, for countries facing default, when public debt becomes too high and the government cannot borrow at sustainable terms, transparency also has a role to play in negotiations with creditors by enabling a faster resolution of debt problems during debt restructuring

To ensure adequate public debt transparency, stakeholders should be able to count on the availability of timely, accurate, and comprehensive information on public debt stock and flows. You can think of this as the outcome of a country's debt management. But from the perspective of Fund work, the concept of public debt management transparency is broader-it also encompasses the availability of key procedures and policies on public debt and of sound legal frameworks to support them. This should cover both the central and the general government.

The Current State of Public Debt Transparency in EMDEs

Evaluated against these metrics, sovereigns in advanced economies generally abide to high standards of debt transparency. Advanced economies typically finance themselves in markets, which impose market discipline. The process for sharing information on their borrowings is well established and institutionalized, and as a result, data on public debt is readily accessible. Some emerging markets are as transparent as advanced economies on their general government debt. However, governments in many emerging markets and developing economies rely significantly on external loans as well as on non-marketable domestic debt which can make their debt less transparent.

Many factors explain the opaqueness of government borrowings in emerging markets and developing economies. These include lenders' preferences, persistently large borrowing needs, low accountability, aversion to transparency, shallow bond markets, and lack of capacity. While inadequate public debt transparency is often the result of an interplay between several factors, analyzing them separately allows identifying potential solutions that are most urgently needed. Allow me to highlight a few key factors and what can be done to address them.

First, lender preferences. Some resource-exporting countries use collateralized debt structures at the behest of creditors, involving special purpose vehicles that conceal the nature and seniority of these debt structures. Importantly, collateralized debt is often undertaken with confidentiality and non-disclosure agreements that impede reporting and disclosure.

Solutions to address this type of opacity require establishing a legal and policy framework that discourages such borrowing structures. Legal frameworks can also help tackle this problem by limiting the scope of confidentiality agreements the executive can enter into and mandating a minimum level of disclosure regarding the financial terms of these debt liabilities.

Second, the reticence of sovereign borrowers to disclose their borrowings. This can be an intentional under-reporting of public debt liabilities. However, it is often more subtle: some sovereigns rely on financing by state-owned enterprises (SOEs) or other entities that are effectively backed by the government, but whose debt liabilities are kept off-budget.

Finding solutions to this problem is a difficult challenge. The solution is stronger governance, supported by stronger legal frameworks around the entire public financial management ecosystem. Such frameworks would warrant disclosure of all public debt liabilities and new borrowings, including by SOEs, and extra-budgetary entities supplemented with full fiscal transparency of the government and the SOEs balance sheets.

Third, there can be gaps in the framework for public debt transparency. Such gaps mostly reflect shortcomings in the governance, reporting, and the institutional and policy framework of public debt. In many countries, this is a function of fragmented debt management responsibilities even within the central government. Inadequate transparency in such countries does not imply a lack of willingness by the sovereign to disclose its debt liabilities, but rather a deficiency in its ability to be adequately transparent. We see many such cases in our work.

Addressing these gaps requires a broad-based approach, starting from the legal and governance framework, and weaving through institutional arrangements and the policy framework for public debt management. We have seen some countries make tangible progress that we have supported with capacity development, although more needs to be done across our membership.

Leveraging Marketable Debt for Transparency and Sound Financing

While much of the global discussion related to transparency has focused on external debt. I will take this opportunity to speak about debt issued in the local market and how greater reliance on marketable debt could drive better transparency and sound financing. Domestic debt transparency is an overlooked issue in the debt discussions on low-income countries (LICs).

Large emerging markets typically have well-developed domestic government securities markets characterized by strong transparency practices. As in advanced economies, the cost of borrowing in large EMs reflect market forces. In the last decade or so, sovereigns from smaller emerging markets and LICs have relied more heavily on domestic debt. However, in these countries, transparency practices in domestic debt markets are often weak. And since in some cases the development of local debt markets is still evolving, many borrowers rely on non-marketable debt to fill part of their domestic financing needs. Non-marketable borrowing tends to be more insulated from price signals and inherently less transparent.

There is a solution: accepting market prices. Transparency is a prerequisite for markets to operate well. Transparency on primary market issuances is crucial for price discovery and predictability for investors. And transparency in secondary market pricing and transactions is important for market liquidity. Such steps could create a self-reinforcing dynamic to improve transparency.

IMF Work on Debt Transparency

Against this background, let me now give you a brief account of what we do in the Fund to promote debt transparency by sovereign borrowers. These efforts span the three key areas of Fund activity: bilateral surveillance, lending, and capacity development.

Within bilateral surveillance, the IMF last year decided to expand the scope of mandatory reporting on debt by member countries. Members will be required to report on general government debt stock from this year (2025) and to report its detailed composition from 2027.

In the context of our lending programs, the IMF Debt Limits Policy has raised the bar on debt disclosure. Where countries have critical debt data disclosure gaps, these should be addressed upfront in IMF-supported programs. And every IMF program staff report is now required to provide granular information on debt holders and debt service by creditor for a period of three years as well as information on the stock of collateralized debt.

Our work on Capacity Development (CD), supports efforts to enhance transparency by sovereign borrowers. Over the years, debt transparency has increasingly been mainstreamed across many areas including support on public debt management, fiscal transparency assessments, debt sustainability assessments, the domestic legal framework on public debt management, and statistical dissemination of public debt. Further, debt transparency has now been added as an explicit outcome in our Results-based Management framework, which we use to monitor the effectiveness of our CD delivery.

The Fund has stepped up its CD work on public debt reporting and monitoring, publication of medium-term debt management strategies and annual borrowing plans, and fiscal risk assessments-all of which will contribute to enhance transparency by our member countries. For this purpose, staff from different departments-including staff from MCM, as well as the IMF's Fiscal Affairs, Statistics and Legal Departments-work closely with officials across our membership from the Ministries of Finance, Debt Management Offices, Central Banks, and Audit Institutions.

Our policy and analytical work-including papers like Making Public Debt Public, and those on Sovereign Investor Relations and Legal Foundations of Public Debt Transparency-shape global thinking and inform Fund policy. At the same time, our longstanding guidance-like the IMF-World Bank Guidelines on Public Debt Management and the Fund's Fiscal Transparency Codeas well as statistical standards-continues to provide an anchor for sound debt transparency practices across our membership.

Conclusion

As you carry forward your discussion today and tomorrow on the legal reforms needed to promote transparency of sovereign debt, I would like to leave you with four key messages.

First, public debt transparency helps a sovereign, both in good and bad times.

Second, enhancing debt transparency is all the more critical under the current global environment.

Third, debt transparency must be designed and not assumed as a default setting.

Fourth, it must be embedded in law, institutions, and incentives-across the full spectrum of public borrowing.

To achieve this, countries should develop a strong governance mechanism on public debt supported by robust legal and institutional frameworks. Such frameworks should not only cover central government debt but also extend across the general government and state-owned enterprises. The goal is clear. However, we must acknowledge that this would be a big ask and long-term project, especially given the capacity constraints in many emerging and developing economies.

A well-sequenced approach to upgrade the transparency framework will be crucial. For many countries, starting with central government debt and expanding outward in a phased, realistic way could be the right approach. Enhancing transparency on general government debt and the wider public sector would be the next priority.

The Fund remains a committed partner in this journey-helping countries move from fragmented systems and hidden risks to integrated frameworks and informed policy choices.

Thank you-and I wish you a productive remainder of the conference.