World Bank pushes for full disclosure from nations taking on debts

The World Bank has asked developing countries to fully disclose their debts and thus steer clear of any future crises.

In a Friday report, the bank called for “radical” transparency among developing countries, aiming to expand the scope and clarity of disclosures around new loans.

Axel van Trotsenburg, senior managing director at the bank, even commented:

When hidden debt surfaces, financing dries up and terms worsen. Radical debt transparency, which makes timely and reliable information accessible, is fundamental to break the cycle.

Axel van Trotsenburg

World Bank wants countries to increase audits and reveal details on their loans

The World Bank insists that countries institute legal frameworks that compel transparency in loan contracting and ensure the disclosure of more granular debt information. The institution also wants nations to normalize audits and public disclosure of debt restructuring terms, and asks lenders to reveal the details of their loans and guarantees.

It also urges countries to adopt improved tools that help international financial institutions identify cases of misreporting. 

For some time now, the World Bank and other multilateral banks have been pushing for increased transparency, and their efforts may have encouraged countries to step up.

While under 60% of low-income countries disclosed debt data in 2020, the figure has since risen to more than 75%. Only 25% reveal loan-level data, and multiple countries have resorted to central bank swaps and collateralized transactions that make it challenging to report data.

For starters, Senegal has relied on private debt placements as it works through discussions with the IMF concerning previous debt misreporting. Similarly, Cameroon and Gabon have resorted to “off-screen” deals, and Angola was forced to cover a $200 million margin call following a sharp decline in its bond prices. 

Meanwhile, Nigeria’s central bank revealed in early 2023 that a significant portion of its foreign exchange reserves—worth billions of dollars—had been locked into complex financial agreements.

World Bank says FDI has dropped to its lowest level since 2005 

The bank noted that developing economies have seen the weakest levels of foreign direct investment since 2005, as trade and investment barriers continue to grow.

In 2023, developing nations attracted just $435 billion in foreign direct investment—their lowest inflow since 2005—while high-income countries saw only $336 billion, marking the lowest since 1996.

Indermit Gill, the bank’s Group Chief Economist and Senior Vice President, believes it’s not by chance that FDI inflows slowed at the same time as public debt rose to record levels. He argued that several governments have been instituting trade and investment barriers in the last few years instead of disbanding them, calling for a change in action.

Governments and some financial and civil society institutions agreed to have their representatives meet from June 30 to July 3 in Seville, Spain, to discuss strategies to put together finances to achieve key global and national development goals. 

Some have suggested the reduction of investment restrictions, seeing that about 50% of government FDI measures introduced in developing nations since 2010 have been restrictive. The bank’s analysis also shows that expediting investment projects would help raise FDI inflows.

Ayhan Kose, the Deputy Chief Economist and Director of the Prospects Group at the bank, believes that a rise in FDI is critical for more employment opportunities, a steady growth rate, and to facilitate development. He added that countries need to enact bold domestic reforms to improve the business climate and decisive global cooperation to revive cross-border investment.

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