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To end déjà vu on debt, strengthen accountability systems

FILE – U.S. Treasury Secretary Janet Yellen stands in the “Door Of No Return” on Goree Island, Senegal, Saturday Jan. 21, 2023. The Chinese government said Tuesday, Jan. 25, 2023, that the United States should stop pressuring it on debt relief for Zambia and get its own financial house in order to avert a default and possible repercussions for the global economy. (AP Photo/Stefan Kleinowitz, File)

As many countries face the crushing weight of unsustainable debt, calls for relief are mounting. The proportion of low-income countries in debt distress, or at high risk of debt distress, has doubled to 60 percent from 2015. The United Nations reports that 25 of the world’s poorest countries are now spending more on debt than education, health and social protection combined. 

The status quo is simply unsustainable — and the world’s poorest communities are bearing the brunt. 

Both borrowers and lenders have a responsibility to be transparent over loan contracts, and doing so is good for everyone. Some lenders have improved their transparency standards, but others opt for opacity. While international pressure on creditors is essential and should continue, borrower governments must also fulfill their responsibility by informing and engaging the public about the debt being taken on in their name. To break the déjà vu on recurring debt crises, domestic accountability systems should be supported in borrower countries to ensure greater transparency and public debate around debt management.

Currently, we have a democratic deficit in the way many countries manage debt. Over the past decade, public debt across the developing world became more expensive and opaque as new lenders emerged, pushing governments into more vulnerable fiscal positions. Yet debt negotiations have left little room for the public and oversight actors to have a say in how governments are managing these risks. 

Borrowing governments face very limited domestic pressure when it comes to lending. Faced with an endless string of development priorities in need of financing, governments are often happy to accept offers of lending even when the conditions are not advantageous, pushing the cost of repayment to future governments — and future generations — with little accountability. In some cases, personal benefit provides a strong incentive for politicians to accept offers that they may otherwise refuse, especially when negotiations are opaque.

Calls for “debt transparency” by international financial institutions are important but have tended to be donor-driven and focused on a conception of transparency as simple disclosure. Little attention has been given to the role information could play in mobilizing domestic actors in holding governments accountable long-term. 

Country officials provide little information about debt as part of regular budgetary processes. According to the Open Budget Survey, about half of the 120 countries surveyed provide data in their budget proposals on their total debt burden. Even fewer supply figures on the potential vulnerability of the country’s debt position, while just one-quarter contribute information on the long-term sustainability of government finances. Most worryingly, countries at higher risk of debt distress are most likely to have less transparency in their budgets.

Disclosure is an essential first step, but not enough on its own to change the incentives borrowing governments face. Civil society and formal oversight actors, such as legislatures and external audit institutions, play very limited roles in debt processes. While international actors have invested significant resources in improving debt management systems and building the capacity of debt managers, these efforts — focused on the executive arm of government -– have overlooked the broader accountability system and the political drivers of irresponsible borrowing.

To address this democratic deficit, we must strengthen the role and voice of domestic actors who have a legitimate stake in improved debt decision-making. To start with, governments should routinely include detailed and comprehensive debt-related information in key documents. This would allow the public and oversight actors to better scrutinize how borrowing decisions impact a government’s fiscal situation and its capacity to deliver services. They should also ensure that information on all aspects of public and private loans is made available through a single public portal so that it is easier to access and monitor. Similar transparency requirements should be demanded of creditors, especially given the rise of non-traditional lenders who use confidentiality clauses

Most of all, we need to bolster the capacity and powers of domestic watchdogs — the public, legislators and national auditors to ensure that governments borrow responsibly. This could include mandating parliamentary approval on any new borrowing, requiring regular reporting by ministers of finance to legislators on the country’s debt position, and pursuing enhanced external audits on government debt.

As the United States and other host countries launch the second Summit for Democracy later this month, conversations around corruption and accountability will loom large. So far, commitments and cohorts have failed to connect the dots between debt accountability and the summit objectives of combating corruption, countering authoritarianism and promoting human rights. This omission is hard to understand, but it can still be corrected. 

Bringing together governments, civil society, legislatures and the private sector, round two of the summit is the perfect opportunity to elevate the need for debt accountability, mobilize a new coalition of actors and develop common commitments that pave a sustainable and democratic path out of the current crisis.

Anjali Garg is the interim policy director of the International Budget Partnership. Kristen Sample is the director of democratic governance at the National Democratic Institute.

Tags Joe Biden Politics of the United States Public debt Summit for Democracy

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