Making money move South - Editor's Blog -

Debt transparency is a strong theme at the 2019 annual meetings of the IMF-World Bank in Washington but the challenges are huge, writes Brian Caplen.

Europe has a €300m a year savings surplus and a slew of bonds with negative yields. Surely those funds would be better off financing infrastructure in Africa and other emerging markets? 

But right now the flow is more likely to be in the other direction with sharp outflows occurring after every latest snag in the on-going US-China trade dispute. 

There are no quick solutions to this problem but a step forward was the Institute of International Finance's publication of its voluntary principles for debt transparency in June. Lending to emerging market sovereigns by the private sector on a sustainable basis can only happen if all the terms and conditions are clear. 

For this reason, debt transparency emerged as a strong theme at this year's IMF-World Bank annual meetings with concerns raised about the role of state-owned enterprises and quasi-state actors, the use of collateral such as oil and gold to enhance issues and structures such as asset-backed and public private partnerships that are generally less transparent than sovereign bonds. 

In a panel chaired by World Bank president David Malpass, the huge growth in China's role as a creditor, especially in Africa, was raised by Harvard professor Ken Rogoff as an additional cause of lack of debt transparency as few details of the terms were publicly available. 

The former Liberian finance minister Antoinette Sayeh said that big improvements in civil society and the role of parliament were needed in some countries to hold governments to account over their debt management policies. 

Pressure from international institutions is also vital and the World Bank included debt transparency as part of its approach to debt vulnerability in low-income countries launched back in 2018. 

The figures show how failure in this regard is more than academic. Debt to African gross domestic product has nearly doubled from 28% to more than 50% in the past five years. Get the terms and conditions right and further sustainable borrowing to finance growth is possible. Get it wrong and we will be writing about the great African debt crisis and a lost decade some time in the future. 

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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