In 2005, the World Bank and the International Monetary Fund (IMF) introduced the Low-Income Country Debt Sustainability Framework (LIC-DSF), which has since become a cornerstone of debt sustainability analysis. The associated Debt Sustainability Analyses (DSAs) are the “gold standard“ for any assessment of sovereign debt sustainability and are the basis for the determination that today, 57% of International Development Association eligible countries (IDA eligible countries) are at high risk of, or in, debt distress. But the credibility of DSA assessments depends on, among other things, not only the availability of data on a country’s stock of public and publicly guaranteed debt but also the quality of that data: i.e., whether the data are timely, accurate and include all debt-producing liabilities.
A recent IEG evaluation of the World Bank’s Role in and Use of the Low Income Country Debt Sustainability Framework (LIC-DSF) found that discussion of debt data coverage in DSAs has improved since the 2017 reform to the LIC-DSF, including with respect to contingent liabilities. DSAs now routinely include a clear and up-front assessment of the adequacy of the coverage of a country’s debt data but do not clearly and routinely assess the degree of confidence World Bank and IMF staff have in the data on which their analysis is based. Moreover, DSAs also do not consistently articulate concrete plans to address shortcomings in debt data coverage, particularly with respect to state-owned enterprises and associated contingent liabilities.
Recent analyses have highlighted issues with the lack of uniform, timely, and consistent debt reporting. Many low-income countries (LICs) still fail to meet minimum standards of public debt recording and reporting, even before confronting the demands of monitoring increasingly complex portfolios and contingent fiscal risks associated with SOEs and public-private partnerships. Weak domestic legal and institutional frameworks required to comprehensively control and monitor debt risks are regularly identified as problematic by diagnostics tools such as the Debt Management Performance Assessment (DeMPA). There may also be differences with international conventions on definitions that can complicate reconciling data across debtor and creditor records, thereby impeding cross-country comparison. A recent World Bank analysis found that public debt data disclosed in different publications have discrepancies of up to 30% of GDP.
IDA-eligible countries with outstanding obligations to the World Bank are legally required to report their external public and public debt liabilities on a quarterly and annual basis to the World Bank’s Debt Reporting System (DRS). The DRS provides a detailed breakdown of debt data, with the broadest coverage for external debt amongst various debt databases housed by the World Bank and IMF. The majority of IDA-eligible countries meet DRS obligations to report detailed loan-by-loan data on external public debt, however, over the last decade, one in five did not submit comprehensive reporting templates, or if they did, quality was not satisfactory.
Even when debt is routinely reported, interpreting it and assessing its quality can be challenging. Over the past five years, an upward revision to debt data occurred in more than 60% of DRS reporting countries. On average, the public and publicly guaranteed external debt stock was revised up by 5.3% from 2016 to 2020. Revisions in many countries were modest; however, for 20 countries, the upward revision was more than 10% of the initially reported debt stock.
The largest number of revisions occurred in LICs where capacity for debt reporting and recording was weak. Public and publicly guaranteed external debt stock was revised upward by more than 10% for 12 LICs, of which 9 were in Sub-Saharan Africa and 5 were classified as fragile and conflict-affected states. Rather than being the result of deliberate omission, this is often the result of inadequate capacity to classify and report increasingly complex debt transactions as part of diverse portfolios that include contingent fiscal risks associated with SOEs and public-private partnerships.
The IEG evaluation recommends that greater attention is needed to assess debt data quality.
The current LIC-DSF guidelines do not explicitly require an assessment in the DSA of data quality. What would this mean in concrete terms? DSAs could more regularly and explicitly include an assessment of the timeliness of reporting, the frequency of data revisions, clarity on data sources, as well as reference to aspects of DeMPA ratings that relate to debt data reporting, recording, and completeness in the cases where a country has not met the minimum standard of performance.
Additionally, IEG has previously noted that it would be beneficial to change from the current practice whereby DeMPA reports are kept confidential unless a government formally decides to publish them, to a presumption that DeMPA reports would be published, unless a government formally requests to keep them confidential. This still gives governments control over publication, but implies a default to transparency. This would mirror how the IMF transitioned in the late 1990s from having few Article IV Consultation Reports published to the current situation whereby most Article IVs are published. It would also both incentivize better debt management and debt data quality, and enhance confidence in the quality of DSAs
DSAs could also more regularly discuss concrete plans to address specific data shortcomings, particularly with respect to state-owned enterprises and associated contingent liabilities. Bank staff should also continue the reconciliation of DSA data with the data reported to the Bank through the DRS.
Strengthening these aspects of DSAs would bolster country incentives for timely, accurate, and comprehensive reporting of debt data and help channel and focus technical assistance to entities within countries responsible for debt reporting. The World Bank’s stewardship of the DRS and its management of the DeMPA suggest that it has the comparative advantage among development partners to lead on this issue and can draw on its convening power to work with other partners to foster stronger debt data quality and coverage. This will be even more important as debt sustainability analysis becomes more critical in confronting the aftereffects of the COVID-19 pandemic, a slowing global economy, and the climate crisis.