When the Summit for Democracy convenes today and tomorrow, leaders from more than 100 countries will turn their collective attention to addressing some of the thorniest challenges facing democratic government today. Organized around the summit’s three pillars — corruption, authoritarianism and human rights — an “illustrative menu of options” memo circulated by the summit's organizers reveals a wide range of commitments under consideration.
While the ‘menu’ options are worthy and relevant to the challenges of the day, there is one key action item that so far has been missing from the agenda: debt transparency. Debt payments for governments in the Global South have increased by 115 percent since 2010, and are at their highest level since 2001. Yet it is currently difficult, and sometimes impossible, to find information on loans given to governments.
Borrowers and lenders have a responsibility to be transparent over loan contracts, and doing so is good for everyone. Lenders need to know what debts a government has in order to assess the likelihood of a loan they are giving being repaid. For borrowers, transparency ensures all stakeholders have a clear idea of a country’s debt burden, which decreases the risk attached to lending and could in turn enable governments to secure lower interest rates.
Yet, in practice, loans are often given without parliamentary and public scrutiny, and in the worst cases without the existence of the loan being disclosed at all. Forty percent of low-income developing countries have neglected to publish any sovereign debt data over the last two years. Across the developing world, only one country — Cameroon — has a publicly accessible database that includes loan contracts with all external creditors.
Transparency is just as poor on the part of lenders. Following the scandal in Mozambique — where two multinational banks arranged $2 billion of loans in secret — banks agreed in 2019 to voluntary disclosure principles. Two years later, no details of any loans have been disclosed. A registry housed by the Organization for Economic Cooperation and Development is due to be launched in early 2022, but there are fears few private lenders are set to disclose information through it.
Loans from governments are also opaque. Chinese lending, in particular, has raised alarms, in recent years, due to the inclusion of confidentiality clauses and the collateralization of strategic reserves. Across the board, there has been no routine disclosure of loan details by lending governments. This year the G7 finally committed to publishing loan-by-loan data by the end of 2021, a move that needs to be implemented now and followed by all other governmental lenders.
Opaque debt is a democratic deficit; progress toward debt transparency at the Summit For Democracy would deliver dividends across all three of the pillars:
- Corruption: Without transparency, citizens, media and parliaments are unable to conduct basic oversight on the government’s overall debt management and on the use of the loans. Funds may be wasted or misused as a result.
- Authoritarianism: Depriving parliaments and the public of full information on debt deals empowers the executive at the expense of democratic checks and balances. Opaque loans can help prop-up authoritarian regimes.
- Human Rights: Non-transparent sovereign debt is a violation of the universally recognized right to information. Without scrutiny, there is a greater likelihood that the government might accept disadvantageous terms, including the collateralization of strategic reserves or a lack of labor or environmental protections. Additionally, if loans are not well used, debt becomes a larger burden on government budgets, diverting funds from vital public services. Austerity exacts a particularly high toll on women and other vulnerable groups, implying additional unpaid care tasks, higher rates of layoffs and cuts to services.
Building on the growing consensus across stakeholder groups, the Summit for Democracy process could provide a major impetus for driving debt transparency solutions:
- All governments should commit to holding accountable debt contracting processes, where national parliaments approve borrowing plans. Such plans should be agreed through an open process before contracts are signed so that civil society and the media can scrutinize them and the decision-making process. The African Forum and Network on Debt and Development (Afrodad) have detailed how such a process should work.
- Lenders have the same responsibility to be transparent. All government, multilateral and private lenders should commit to disclosing the existence of loans and key information on their terms, on a loan-by-loan basis, within 30 days of contracts having been signed. This disclosure should take place on one publicly accessible registry where media, civil society and parliamentarians can access loan-by-loan information.
- To ensure this happens, transparency commitments should be backed-up by legal or regulatory enforcement. One way to do this would be to change the law so that for a debt contract to be enforceable, it must have been publicly disclosed on the registry when it was given. Currently, 48 percent of international government bonds are issued under English law and 52 percent under New York law, with less than 1 percent under any other jurisdiction. Legislative change in New York and the U.K. could create a powerful incentive for loans to be disclosed on the registry.
Loans to governments are loans that affect the citizens of that country. The public has a right to know about the debt being taken on in their name. All borrowers and lenders have a responsibility to ensure that right is fulfilled.
Tim Jones is head of Policy at The Jubilee Debt Campaign in the United Kingdom. Follow him on Twitter @tim_jones6. Kristen Sample is director of democratic governance at the National Democratic Institute. Follow her on Twitter @kristensample.