Why is the World Bank demanding radical debt transparency now?

The World Bank is sounding the alarm over a growing lack of transparency in how developing countries borrow money. In a new report released on Friday, the Bank called for “radical debt transparency”, urging both borrowers and lenders to reveal more detailed information about sovereign loans to prevent future financial crises.

The warning comes amid rising concern over off-budget borrowing, opaque financial contracts, and secretive debt arrangements that are making it harder to assess the true financial health of many nations, particularly across Africa, Asia, and low-income economies.

“When hidden debt surfaces, financing dries up and terms worsen,” said Axel van Trotsenburg, the World Bank’s senior managing director, as quoted by Reuters.

“Radical debt transparency, which makes timely and reliable information accessible, is fundamental to break the cycle.”

Why is debt transparency so urgent?

As market volatility, inflation, and geopolitical tensions strain government budgets, many countries are resorting to complex and unconventional borrowing methods, such as central bank currency swaps, private debt placements, and collateral-backed loans—to raise funds.

These financial instruments often bypass standard budget reporting, making it increasingly difficult for lenders, credit agencies, and even citizens to track a country’s real debt burden.

According to the World Bank, more than 75 per cent of low-income countries now report some debt data, a significant rise from below 60 per cent in 2020.

However, only 25 per cent disclose loan-by-loan information, meaning that in most cases, the specifics of individual loan agreements remain hidden from the public and global financial institutions.

Countries under pressure

Several nations are already facing the consequences of opaque debt structures.

Senegal, for instance, has turned to private debt placements while engaging in talks with the International Monetary Fund (IMF) over misreporting of earlier obligations.

In Nigeria, the central bank revealed in early 2023 that billions of dollars in foreign exchange reserves were tied up in secretive financial contracts signed by the previous administration.

Angola was recently forced to pay a $200 million margin call after a sharp fall in its bond prices. Meanwhile, Cameroon and Gabon have been linked to so-called “off-screen” borrowing arrangements, raising fresh concerns over undisclosed public liabilities in the region.

What the World Bank wants

To prevent a systemic crisis, the World Bank is urging governments to undertake legal reforms and adopt stricter reporting mechanisms. These include mandatory disclosure of new debt agreements and greater transparency from both lenders and sovereign borrowers.

The Bank has outlined a five-point plan:

•     Legal changes: Make loan contract transparency a legal obligation.

•     Public disclosures: Publish loan-by-loan data and the terms of any debt restructurings.

•     Creditor openness: Require lenders to disclose their loan and guarantee portfolios.

•     Regular audits: Improve oversight through independent and timely reviews.

•     Enhanced IMF tools: Equip global financial institutions to better detect debt misreporting.

As quoted by Reuters, the Bank believes broader debt coverage and deeper, granular loan-level disclosures will help the global community accurately assess debt risks and exposures across emerging economies.

A broader warning for the global debt market

The World Bank’s message isn’t just for governments. It is also a direct challenge to creditors, especially those who operate outside traditional international lending frameworks.

In recent years, Chinese policy banks, Gulf state funds, and private bondholders have taken on a greater share of developing country lending, often through non-concessional loans that are not subject to transparency conditions or multilateral oversight.

With interest rates remaining high and global credit access tightening, the Bank warned that without transparency, countries could quickly slide from debt distress into full-blown financial crises.

(With inputs from the agencies)