While many countries conventionally publish their public debt stock, it is emerging that some significant debts are hidden from the public, a phenomenon which is becoming a global concern for the International Monetary Fund (IMF) due to its consequences.
Due to the economic impact and consequences the growing situation has on debt restructuring efforts, the IMF is leading a campaign to tackle a growing and deeply concerning global trend.
Speaking at the IMF’s Conference on Public Debt Transparency: Aligning the Law with Good Practices, Managing Director Kristalina Georgieva issued a stern warning about the dangers of increasingly complex and opaque forms of government borrowing.
She also expressed worry that the rising trend of hidden public debt is worsening the already high global debt levels, exacerbating the situation.
“We have a high level of debt, and on top of it, countries are increasingly using complex forms of financing that are often opaque,” Georgieva said. “Simply put, you cannot manage what you cannot see.”
What Is Hidden Debt?
Hidden public debt, the IMF describes as financial obligations of governments that are not fully disclosed or properly accounted for in national statistics or public debt reports. These public debts often emerge from arrangements that fall outside conventional government borrowing, and they are frequently omitted from budgets and debt reporting systems.
These debts are often unmasked during a debt restructuring exercise or even after the exercise, putting some arrangements into disarray.
The Forms
According to the IMF, in recent years, new and intricate forms of debt have emerged. These include:
Guaranteed Debt: Loans backed by government guarantees, often extended to state-owned enterprises (SOEs), which are not reflected in central government debt figures.
Securitized Debt: Government revenues or assets are bundled into financial products and sold to investors, often outside standard accounting frameworks.
Collateralized Debt: Loans secured against natural resources or future revenues such as oil, gold, or toll road income.
Public-Private Partnerships (PPPs): Long-term contracts with private entities that carry financial obligations for the state, especially when demand projections fall short.
Pension Fund Liabilities: Deferred obligations that are not always recorded transparently, yet constitute long-term liabilities for the state.
The Cost of the Hidden Debt
Kristalina Georgieva maintains that hidden debt not only obscures the true fiscal position of countries but also carries tangible economic costs. These include eroded investor confidence, higher borrowing costs, and increased vulnerability to debt distress.
The problem often comes to light too late, when countries are already navigating the painful terrain of debt restructuring.
“Too much debt remains hidden from the eyes of policymakers and the public. And too often it comes to light only when it is late, through the debt restructuring process,” Georgieva noted. “Hidden debt inflicts real costs. It saps investor confidence. It increases borrowing costs. And it puts debt sustainability at risk.”
Tackling the Menace
The IMF has identified debt transparency as a global public good, advocating for legal and institutional reforms to bring hidden liabilities into the open.
The call is not only for borrower countries to strengthen their debt disclosure laws but also for lenders, both public and private, to commit to more transparent reporting.
“We need the right laws and requirements in both borrower and creditor countries to defer the decision-making to competent bodies so they can do what is right for debt reporting and debt management,” Georgieva emphasized.
In addition, the IMF is working with international partners, including the World Bank, the G20, and regional development banks, to support countries in improving debt transparency. Tools like the Debt Sustainability Framework (DSF) and public debt registries are being enhanced to capture a fuller picture of public liabilities.
Initiatives such as the G20 Common Framework for Debt Treatments and the Institute of International Finance’s (IIF) voluntary guidelines are also part of the broader global push for clarity and accountability.
Without full awareness of a country’s debt profile, even the best-intentioned fiscal and monetary policies may fail to yield results.
Debt transparency, as the IMF calls is not a luxury. It is a necessity, and countries need light to cut through the fog surrounding the mountain of debt. The IMF believes that only through shared responsibility, systemic reforms, and unwavering commitment to transparency can the world avert the next debt crisis.
