In addition to the devastating health and social impacts, the pandemic leaves in its wake a crushing public debt burden and a steep increase in debt service payments. Global sovereign debt is at the highest levels in 50 years and triple 2008 levels. In 2021, 25 of the world’s most poverty-stricken countries spent more on debt service payments than on health, education and social protection combined. Austerity exacts a particularly high toll on women and other vulnerable groups, implying additional unpaid care tasks, higher rates of layoffs and cuts to services.
Absent a solution to the debt crisis, sustainable and equitable recovery from the pandemic is impossible. Democratizing public debt, through enhanced transparency and oversight, is the key to ensuring that debt-related decision making is sound and that resources benefit those who need it most.
Loans are often taken on without parliamentary scrutiny or public knowledge. According to the World Bank, 40% of low-income developing countries have neglected to publish any sovereign debt data over the last two years. Lender transparency is similarly inadequate. According to one study, 50% of public debt owed to China was “hidden” debt that countries did not report to the World Bank and IMF database. A review by AIDDATA of 100 Chinese loan agreements across 24 countries found that they consistently included strict nondisclosure clauses. Private sector lending has increased sharply in recent years, accounting for nearly 20% of loans to east and southern Africa. Often sold on to other private companies, including hedge funds and vulture funds, private lending is notoriously opaque as revealed by scandals in countries ranging from Mozambique to Malaysia.
In Africa, NDI has partnered with the African Forum and Network on Debt and Development (AFRODAD) to bring together civil society groups from across the continent to strengthen regional information-sharing, best practices, and advocacy around public debt issues. In Kenya, NDI is also supporting the Okoa Uchumi Campaign’s efforts to develop a citizen manifesto on public debt accountability and increase democratic debate and engagement on prudent debt management in the context of the upcoming general elections.
In Zambia, NDI supports the Debt Alliance civil society coalition to advocate for prudent public debt management and increased debt transparency. In a recent and ongoing activity, NDI is aiding the Debt Alliance to respond to government-drafted legislation that, while enabling parliamentary oversight of loan contraction, contains significant loopholes allowing loan contraction without oversight and falls short on debt transparency standards.
As the national institution most closely linked to constituent demands, legislatures have a vital role to play in debt deliberation and oversight. In most countries, however, parliaments have found themselves sidelined during loan approval processes. In some cases, the problem lies in the legal frameworks: a 2013 study found that only 59% of legislatures had legal authority to approve loan agreements. Moreover, the creditors’ own working methods center on the executive branch, further exacerbating an imbalance of powers.
Globally, NDI has worked to fill a knowledge gap on legislative roles and good practices related to public debt. In partnership with the Westminster Foundation for Democracy, NDI developed policy briefs aimed at supporting parliamentary capacity in terms of:
General debt management;
Debt management legal frameworks;
Oversight of debt management; and
Debt decision-making and oversight in emergency contexts.
In Georgia, NDI has worked with the Parliament to build its capacity for debt management and the effective use of oversight mechanisms. As part of this collaboration, NDI supported the development of a step-by-step guide on debt-related processes for legislators and staff and a series of activities aimed at increasing public awareness and participation through webinars and the publication of informative materials on public debt statistics and policies. With NDI support, the Parliament also incorporated debt transparency commitments into its 2021-22 Open Parliament Plan, which created momentum and laid the groundwork for the Budget and Finance Committee to carry out its first-ever thematic inquiry on the impact of the pandemic on public debt and fiscal stability and issue specific recommendations to government.
Authors: Kristen Sample, Director of Democratic Governance, National Democratic Institute
NDI is a non-profit, non-partisan, non-governmental organization that works in partnership around the world to strengthen and safeguard democratic institutions, processes, norms and values to secure a better quality of life for all. NDI envisions a world where democracy and freedom prevail, with dignity for all.