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The World Bank’s Role in and Use of the Low-Income Country Debt Sustainability Framework

Chapter 4 | Debt Data—Quality,Coverage, and Transparency


The World Bank plays a leading role in promoting and tracking the coverage and quality of debt data. This is manifest in the World Bank’s stewardship of the Debtor Reporting System (DRS), which requires countries with outstanding obligations to the International Bank for Reconstruction and Development and the International Development Association to report external public and public debt liabilities on a quarterly and annual basis. The World Bank also administers the Debt Management Performance Assessment (DeMPA), which evaluates the adequacy of a country’s debt reporting and recording.

The credibility of the Low-Income Country Debt Sustainability Framework (LIC-DSF) depends on the assumption that data on the stock of public and publicly guaranteed debt are timely and accurate and include all debt-producing liabilities. However, Debt Sustainability Analyses (DSAs) do not clearly and routinely assess the degree of confidence World Bank and International Monetary Fund staff have in the data on which their analysis is based.

LIC-DSF guidelines require that the DSA document identify gaps, note risks, and discuss possible remedial measures to improve data collection. Where coverage of state-owned enterprise (SOE) debt is limited, the DSA needs to flag this omission and identify steps to enhance coverage. Since 2017, discussion of debt data coverage in the DSA has improved, including with respect to SOE activities and contingent liabilities. However, DSAs do not consistently articulate concrete plans to address shortcomings in debt data coverage.

Until recently (spring 2021), the data contained in the DRS were not consistently consulted in preparation of DSAs. Moreover, the views of World Bank staff managing the Debtor Reporting System, particularly on the quality and coverage of data reported to the World Bank, were not routinely sought in DSA preparation and review.

DeMPA scores on dimensions related to recording and reporting debt are not regularly reported or reflected in DSAs, even when a country does not meet the minimum standard for debt reporting. Indeed, despite recent efforts to improve debt transparency, many low-income countries fail to meet minimum standards of public debt recording and reporting (according to the DeMPA).

Shortcomings in reporting often arise from challenges associated with monitoring increasingly diverse portfolios and contingent fiscal risks associated with state-owned enterprises and public-private partnerships. This is often more the result of inadequate capacity to classify and report increasingly complex debt transactions than of deliberate omission.

The Role of the World Bank

The credibility of the LIC-DSF depends on the assumption that data on the stock of public debt and contingent liabilities underpinning the assessment of debt sustainability are timely and accurate and reflect adequate coverage of debt and debt-producing liabilities. The LIC-DSF guidelines set out the perimeter of debt data coverage, and the DSA includes a table and explanatory paragraph to indicate conformity with, or deviations from, the guidelines. The guidelines also require that the DSA documents identify gaps, note risks, and discuss possible remedial measures to improve data collection. Case studies suggest varying degrees of detail and compliance with this requirement, such that the degree of confidence in the coverage and quality of the data on which DSAs are based was not always clearly stated.

The World Bank has a lead role in promoting and tracking the coverage and quality of debt data. Bank stewardship in this area is reflected in two particular initiatives: the World Bank–designed Debt Management Performance Assessment (DeMPA) and the Debtor Reporting System (DRS) housed at the World Bank. Among other things, the DeMPA assesses country performance relative to international best practice in debt recording and reporting of public and publicly guaranteed debt.

The DeMPA provides a widely recognized diagnostic framework for evaluating a country’s debt management processes and institutions against sound international practice. A DeMPA identifies strengths and weaknesses in key dimensions of debt management to signal where capacity and institutions need to be strengthened. Launched in 2007, the DeMPA was updated most recently in 2021 to take account of changes in borrowing pattern and instruments and other dynamics of public debt management.1

DeMPA scores indicate whether a country meets a “minimum standard” for a particular dimension of debt management. This includes the adequacy of debt recording, monitoring, and reporting (box 4.1). Adequate debt monitoring requires the debt management office to regularly monitor that all created debts have been recorded. All contracts should be monitored in close coordination with creditors and disbursing units.

Box 4.1. Challenges in Reporting Accurate and Comprehensive Data

A government’s ability to report debt liabilities accurately and transparently has been increasingly complicated by an expansion in sources for debt financing and increasingly complex and opaque mechanisms for mobilizing debt financing. Although borrowing from Paris Club creditors and international financial institutions is generally subject to strict transparency requirements, the share of debt owed to Paris Club creditors and international financial institutions has decreased over time and given way to greater use of market-based borrowing (or contingent liabilities) from bondholders, capital markets, commercial banks, private sector partners in performance and policy actions, and non–Paris Club bilateral creditors. Loan instruments themselves may include confidentiality clauses or involve collateralization of specific assets or revenue streams. These can complicate assessment of underlying fiscal risks.

There has also been, over the past decade or so, a proliferation of borrowing by public and private entities involving public sector guarantees (both explicit and implicit) through state-owned enterprises, special purpose vehicles, off-budget arrangements, joint ventures, and public-private partnerships, with potentially significant implications for public debt and fiscal risks. These risks are generally higher for lower-income countries, many of which have limited capacity for debt management and generation of domestic revenue to service debt.

For many low-income countries, full and accurate disclosure of information on the value and composition of public liabilities can be challenging even with the best of efforts. The increased complexity of public debt portfolios impedes compilations of comprehensive public debt data that conform to international standards and definitions. Accurate debt reporting requires adherence to rule-based, identifiable borrowing processes and the availability of comprehensive and timely data on public debt and contingent liabilities. The capacity to meet these criteria requires a sound and enforceable legal framework governing all public sector borrowing and an effective institutional and operational framework for debt management staffed by qualified, experienced, and adequately compensated officials. However, in many cases, the effectiveness of debt management offices is undermined by weak staff capacity, high turnover, low staff remuneration, inadequate cooperation between debt management and public financial management functions, weak public investment management, and a lack of attention to back-office functions.

Source: Independent Evaluation Group.

For external debt, the World Bank maintains the DRS to track the timeliness and quality of mandated reporting by sovereign borrowers. The DRS captures loan-by-loan information for all public and publicly guaranteed external debt. It is governed by the World Bank Policy on External Debt Reporting and Financial Statements, which requires countries with outstanding obligations to the International Bank for Reconstruction and Development and IDA to report external public and publicly guaranteed debt and private nonguaranteed debt on a quarterly and annual basis (box 4.2). This includes regular, detailed reports on long-term external debt owed by a public agency or by a private agency with a public guarantee. Borrowers are also required to report in aggregate on long-term external debt owed by the private sector with no public guarantee.

Currently, approximately 125 countries report to the DRS, including all countries eligible for loans from IDA. Data reported to the DRS contain basic information on new loans contracted, including creditor, amount of the loan and repayment terms, loan-by-loan debt outstanding, undisbursed balance, and arrears and flows (disbursements, repayments of principal and interest, and any principal and interest in arrears, restructured or forgiven) within three months of the close of the reporting year. These data provide a detailed account of the borrowers’ external public and publicly guaranteed debt liabilities. The provision of both loan terms and related transactions provides a mechanism for validation of accuracy and enables a detailed reconciliation with creditor records if disaggregated data from the creditor are available.

Since 2018, efforts to improve the timeliness of reporting to the DRS and to ensure that DRS reports include all external public debt have intensified in line with heightened concerns over debt vulnerabilities. The expansion in coverage of data reported to the DRS reflects enhanced focus on the fiscal risks of contingent liabilities of state-owned enterprises (SOEs) and SDFP-related measures to incentivize debt transparency. The effort to close reporting gaps has also included the use of other data to validate and complement DRS reports (for example, creditor annual reports, market sources, and work by academic researchers). However, most data on SOE debt liabilities are available only in aggregate, and incorporating the loan-by-loan record into national recording and reporting systems will take time.

Box 4.2 The World Bank’s Debtor Reporting System

The World Bank’s Debtor Reporting System (DRS) is the most comprehensive source of cross-country information on the external debt liabilities of low- and middle-income countries. The World Bank Policy on External Debt Reporting and Financial Statements states that “as a condition of Board presentation of loans and financings, each Member Country must submit a complete report (or an acceptable plan of action for such reporting) on its foreign debt” (World Bank 2017, 2). However, the World Bank has been reluctant to withhold lending for failure to meet debt reporting requirements, but it could do so. The Independent Evaluation Group was unable to find any instance of loans or financing being withheld because of incomplete reporting under the DRS.

Most countries now submit DRS reports electronically, and borrowers submit using debt management software provided by the Commonwealth Secretariat and the United Nations Conference on Trade and Development. Countries that have the most difficulty reporting to the DRS are poorer countries and fragile states or countries in conflict. Occasionally, implementation of the DRS reporting requirement may be deferred because of specific country circumstances, as was the case for Iraq.

The most significant gap in data reported to the DRS relates to borrowing by state-owned enterprises (SOEs; particularly SOE borrowing without a government guarantee). There have been cases of deliberate underreporting of external public debt liabilities, but these are rare. Most data omissions reflect the absence of systems to collect data at the national level and limitations on the authority of the national debt office. In many countries, including most high-income countries, public debt is defined as the direct borrowing of the general government and borrowing of a public or private sector entity with a state guarantee. As such, recording and reporting on debt outside of these parameters are beyond the remit of the national debt office. The DRS definition of public debt extends to external borrowing by a nonfinancial SOE in which the government holds more than a 50 percent share of the debt, but historically this information was rarely reported.

The ongoing work program for the DRS includes revisions of the reporting requirements that incorporate all borrowing instruments, loans, and deposits and require more information on loan guarantees and proposals to extend the scope of the DRS to all public debt liabilities, domestic and external.

Sources: Independent Evaluation Group; World Bank 2017.

Over the past decade, debt management capacity in IDA-eligible countries has improved, often with technical assistance financed by a Debt Management Facility (DMF) from the World Bank, IMF, and other development partners. But many LICs still fail to meet minimum standards of public debt recording and reporting (according to DeMPAs), even before confronting the demands of monitoring increasingly complex portfolios and contingent fiscal risks associated with SOEs and public-private partnerships. Recurrent problems identified in DeMPAs are weak domestic legal and institutional frameworks required to comprehensively control and monitor debt risks. There may also be differences in debt definitions that can complicate reconciling data across debtor and creditor records and databases, 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 percent of GDP across sources (World Bank 2021b).

A recent World Bank report found that 40 percent of LICs have not published any data about their sovereign debt for more than two years. However, many of these countries did meet DRS obligations to report detailed loan-by-loan data on external public debt. Nevertheless, even when debt is routinely reported, interpreting the data and assessing its quality can be challenging. In 30 percent of LICs, no information is published on sovereign guarantees (World Bank 2021b). Information on contingent liabilities linked to SOEs, special purpose vehicles, joint ventures, and public-private partnerships is rarely included in public debt data. Expenditure arrears, typically converted to debt through securitization, are often hard to quantify in the absence of well-performing accounting systems, which many LICs lack.

Over the past five years, an upward revision to debt data occurred in more than 60 percent of DRS reporting countries (Horn, Mihalyi, and Nickol 2022). On average, the public and publicly guaranteed external debt stock was revised up by 5.3 percent from 2016 to 2020. Revisions in many countries were modest; however, for 20 countries, the upward revision was more than 10 percent of the initially reported debt stock, with revisions to lending by both bilateral and commercial creditors, often to SOEs. As in earlier episodes of underreporting, 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 percent for 12 LICs, of which 9 were in Sub-Saharan Africa and 5 were classified as fragile and conflict-affected states.

Debt Data Quality since the 2017 Guidelines

The 2017 reforms to the LIC-DSF underscored the importance of basing DSAs on full and accurate coverage of public debt. The aim was to ensure comparability across countries and to minimize unexpected increases in debt and related risks from sources outside the defined perimeter. According to the guidelines “the debt definition covers both external and domestic debt: (i) of the public sector, defined as central, state and local governments, social security funds and extra budgetary funds, the central bank, and public enterprises (the latter subsuming all enterprises that the government controls…); and (ii) private sector debt guaranteed by the public sector” (IDA and IMF 2017a, 14). Public financial corporations were excluded, but the DSF tool kit offers options to consider them as contingent risks.

The LIC-DSF guidelines do not explicitly require an assessment in the DSA of data quality, including with respect to requirements for timeliness of reporting, accuracy, and identification of data sources. The LIC-DSF guidelines state that a full LIC-DSA should be produced at least once every calendar year but have no requirement for the periodicity of the debt data on which the assessment should be based. Most DSAs provide only general information on debt data sources; they do not state which national authority(ies) provided the data, the vintage of the data, and the basis for and extent of staff estimates, or how data used in the DSA correlate to information published in debt reports and bulletins or other official documents by the borrower or the external debt information reported to the World Bank DRS.

The LIC-DSF guidelines set a standardized format for presenting debt in a DSA. When a subsector is not included, or only a portion of the subsector is captured (for example, nonguaranteed SOE debt), the guidelines require the exclusion to be explicitly flagged in the DSA. Recent DSAs provide explicit information on debt coverage in a standardized table that specifies each subcategory of debt included. Most recent DSAs—and all the case study countries—have at least a one-paragraph explanation on coverage of public debt, with varying degrees of detail.

DSAs were largely in compliance with the LIC-DSF guidelines in explicitly identifying and discussing shortcomings in reporting and particularly exclusion of SOE debt; however, there are exceptions. The LIC-DSF guidelines allow for exclusion of a public enterprise from the DSA if the enterprise poses limited fiscal risk (that is, can borrow without a guarantee from the government, does not carry out uncompensated quasi-fiscal activities, and has an established track record of positive operating balances). The DSA is required to provide a justification for omitting any fiscally important public enterprises. For example, Ethiopia’s DSA states that the public debt data include data for Ethiopian Airlines, but the DSA excludes Ethiopian Airlines because the airline is run on commercial terms; has a sizable profit margin, as reflected in audited accounts published annually; enjoys managerial independence; and borrows without government guarantee (IMF 2019a, 2020a). The DSA includes the debt of Ethio-Telecom, which is not guaranteed by the government, because it is deemed not to meet the guideline criteria for exclusion (although the authorities have a contrary view). Ghana’s DSA excludes the debt of Cocobod (the cocoa marketing board and one of Ghana’s largest SOEs), which is estimated at 2.5 percent of GDP at year-end 2020, although Cocobod operates on noncommercial terms and engages in quasi-fiscal activity (IMF 2021b). The explanation offered in the DSA is the authorities’ objection to Cocobod’s inclusion in public sector debt and a contention that it is primarily a commercial operation that is not loss making. Most DSAs incorporated SOE debt through contingent liability shocks, with seven of nine case studies using a customized contingent liability estimate to account for underreporting.

Although the LIC-DSF guidelines specify that the DSA should discuss possible remedial measures to improve data collection pertaining to the debt and contingent liabilities of SOEs when there are gaps, most case study DSAs referred to this only in general terms.2 Although almost all of the nine case studies contained a general statement about SOE debt quality and coverage, only a few referred to specific steps to address shortcomings (for example, referring to policy actions for the SDFP [Bhutan] or following up on recommendations from IMF technical assistance [the Democratic Republic of Congo]). Others contained general statements such as “the government intends to improve debt coverage through enhanced SOE oversight and improved financial reporting, which is supported under plans for SNPSF [Société Nationale des Postes et des Services Financiers; postal bank] reforms” (the Comoros; IMF 2021f, 2) or “the government is working, with the support of development partners, to improve its financial and debt management systems, and to enhance the accounting and timely reporting of public debt, including those of [SOEs] and self-accounting-bodies” (Sierra Leone; IMF 2021c, 2).

Just under three-quarters of World Bank country economists believed that debt data coverage and quality were sufficient for the DSA. Seventy-three percent of surveyed economists felt that debt data coverage was sufficient for the DSA. However, 25 percent felt this was only “somewhat” the case. Similar results were found for debt data quality, with 68 percent feeling that it was sufficient and 30 percent feeling that it was only “somewhat” sufficient. Concerns about debt data coverage and quality were often driven by limited coverage of SOE debt and contingent liabilities.

Recent World Bank–Supported Initiatives to Improve Debt Data Quality and Coverage

In 2018, the IMF and the World Bank adopted the multipronged approach to addressing emerging debt vulnerabilities. This approach focused on improving the availability of accurate and timely debt data and strengthening capacity to record and report public debt and contingent fiscal risk liabilities. It contains actions to (i) strengthen debt transparency by working with borrowing countries and creditors to compile and make better public sector debt data available, (ii) strengthen country capacity to manage public debt management to mitigate debt vulnerabilities, (iii) provide suitable tools to analyze debt developments and risks, and (iv) adapt IMF and World Bank surveillance and lending policies to address debt risks and promote efficient resolution of debt crises (IMF 2020d).

In 2020, the World Bank and IMF adapted the multipronged approach to addressing emerging debt vulnerabilities to address increasing debt risks from the pandemic and to support postpandemic recovery. Recent enhancements focused on developing customized advice to address pandemic-related debt and fiscal risks and adapting the modalities of capacity development delivery to the pandemic environment; supporting more comprehensive borrower reporting to international statistical databases; strengthening international financial institution policies on debt reporting and data dissemination; enhancing outreach to creditors, including IMF and World Bank support to implementation of the Group of Twenty’s Common Framework; and releasing new analytical tools, most notably the IMF’s sovereign risk debt sustainability framework for market-access countries, which provides a clearer signal on sovereign debt risks.

In July 2020, IDA adopted the SDFP to incentivize countries to move toward more transparent and sustainable financing. The SDFP replaced the Non-Concessional Borrowing Policy, which had sought to support debt policies and long-term external debt sustainability in IDA-eligible nongap countries. The SDFP’s first pillar—the Debt Sustainability Enhancement Program—is directly relevant to the LIC-DSF in that countries determined to be at moderate and elevated risk of debt distress under the LIC-DSA are required to adopt concrete performance and policy actions (PPAs) to address the drivers of their country-specific debt vulnerabilities.3 4

The implementation of the SDFP has prioritized increasing attention to the disclosure and publication of public debt data. In the first year of the policy’s implementation (FY21), 33 countries subject to the Debt Sustainability Enhancement Program produced and published annual debt reports and/or quarterly debt bulletins, 6 strengthened their public investment management regulations, and 10 started to perform annual fiscal risk assessments to inform fiscal policy decisions. In SDFP’s second year (FY22), two-thirds of IDA countries had at least one PPA focusing on public debt transparency. Forty-two PPAs on debt transparency included comprehensive publications of public and publicly guaranteed debt data, with about 73 percent focusing on expanding the coverage of debt to SOEs’ debt reporting. The SDFP early-stage evaluation, carried out after the first year of SDFP implementation, recommended institutionalizing the requirement for publication through legislative changes, government orders, or decrees (World Bank 2021d).

  1. The Debt Management Performance Assessment covers all public and publicly guaranteed debt, domestic and external. In addition, the subnational Debt Management Performance Assessment and the fiscal risk assessment tools offer tailored diagnostic frameworks for assessing the debt management capacity of local government institutions and the fiscal risks stemming from borrowing by state-owned enterprises.
  2. According to the guidelines, “If data constraints limit coverage of SOE [state-owned enterprise] debt, the DSA [Debt Sustainability Analysis] needs to flag this as an omission and identify steps to enhance the coverage of SOE debt in the next DSA” (IDA and IMF 2017a, 15).
  3. In addition, as per the Sustainable Development Finance Policy implementation guidelines, all countries under the Debt Sustainability Analysis for Market-Access Countries will have performance and policy actions established for the subsequent fiscal year unless the country team requests an exemption by March 31 of each year and management determines based on this request that the country’s debt vulnerabilities are limited.
  4. The International Development Association’s Sustainable Development Finance Policy: An Early-Stage Evaluation concluded that a low risk of debt stress should not be the sole criterion to exempt a country from the requirement to implement performance and policy actions given the speed at which many countries had experienced a significant deterioration of their level of debt stress (World Bank 2021d).