Estimated financing needs in low-income developing countries (LIDCs) will reach $429 billion between 2023 and 2025, World Bank Group said in a new report on Wednesday.
This is as a result of growing current account and budget deficits following the global economic slowdown.
In the report titled ‘Amid record sovereign debt, massive gaps in debt-tracking systems’, most of these financing needs will have to be met through new borrowing.
To ensure that this financing contributes effectively to development outcomes and does not undermine long-term debt sustainability, debt transparency must be improved, the World Bank said. This could contribute to mitigating the severity of “boom-bust” cycles and help avoid setbacks in poverty reduction and other development objectives.
According to the report, the COVID-19 pandemic has highlighted the central role of debt transparency in better assessing debt sustainability, addressing vulnerabilities, and facilitating debt restructuring.
The crisis has increased the balance sheet of the public sector and exacerbated the likelihood of contingent liabilities materialising. According to the World Bank/ International Monetary Fund (IMF) Low- Income Country Debt Sustainability Assessment (LIC-DSA), 44 percent of LIDCs are at high risk of external debt distress and 12 percent of them are already in debt distress.
Inadequate transparency could delay debt restructurings and curb the ability of low-income countries to overcome the pandemic and generate a green, resilient, and inclusive recovery.
The World Bank said at a time when sovereign debt in the poorest countries has surged to dangerously high levels, global and country-by-country systems for tracking it are proving to be inadequate. These gaps make it harder to assess debt sustainability and for overindebted countries to restructure debt promptly and generate a durable economic recovery.
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The report, Debt Transparency in Developing Economies, marks the first comprehensive assessment of the global and national systems for monitoring sovereign debt.
It finds that debt surveillance today depends on a patchwork of databases with different standards and definitions and different degrees of reliability, cobbled together by various organizations. Such inconsistencies lead to large variations in publicly available tallies of debt in low-income economies—the equivalent of as much as 30 percent of a country’s GDP, in some instances.
“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,” said World Bank Group President David Malpass.
“Improving debt transparency requires a sound public debt-management legal framework, integrated debt recording and management systems, and improvements in the 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,” Malpass said.
