State of the Evidence: Debt Transparency

While public debtOpenly disclosing information about government debt enables informed decision-making, mitigates the risk of financial instability, and allows citizens to hold their governments accountable for respons... may sound undesirable, borrowing allows governments to invest in important public goods and services. For low- and middle-income countries especially, public debt can allow governments to further develop transportation infrastructure, healthcare, and industrial capacity. However, if countries become unable to meet their debt repayments and obligations, the debt becomes unsustainable and may lead to default, which occurs when a country is unable to pay back a loan (and the associated interest).

How can countries better manage existing and future debt challenges? Some lenders and civil society activists have proposed debt transparencyAccording to OGP’s Articles of Governance, transparency occurs when “government-held information (including on activities and decisions) is open, comprehensive, timely, freely available to the pub... More as a tool to ensure debt sustainability, which is when “a government is able to meet all its current and future payment obligations without exceptional financial assistance or going into default.” Transparency, they argue, can help policy makers in borrowing countries and creditors make informed decisions about new debt instruments and potential restructuring of existing debt. Are these propositions empirically true? This report by Jessica Hickle assesses the empirical evidence on the consequences of debt transparency to understand its potential use as a tool to combat continued challenges to debt sustainability.