Hidden debt: Tackling grand corruption in debt management to safeguard financing for development
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Article summary
Notes from the Civil Society Policy Forum on 23 April 2025 titled ‘Hidden debt: tackling grand corruption in debt management to safeguard financing for development’, which discussed what happens when debt is captured, mismanaged, acquired improperly, or hidden. The session explored lessons from Mozambique to shape FfD4 discussions on preventing debt capture and safeguarding economic sustainability and future generations’ welfare.
Moderator
- Daniela Patino Pineros, Lead Public Resources, Transparency International
Panelists
- Aslak Jangård Orre, Senior Researcher Chr. Michelsen Institute
- Kjetil Abildsnes, Senior Policy Officer – Debt Justice, Eurodad
- Sally Torbert, Policy Manager, International Budget Partnership
- Alessandro Gullo, Assistant General Counsel, IMF
Notes
Daniela: Debt is essential, to finance infrastructure and other types of services. But we’re seeing, when debt is captured or mismanaged, there is a huge correlation with unsustainable debt. The current debt crisis cannot be disconnected from governance and corruption issues. A big factor is that the current international financial architecture is opening loopholes for corruption: governments that are not strong enough, a lack of oversight in the approval of debt, lack of approval from institutions. Also, the role of civil society, how we can monitor debt and its management.
Alessandro: There is a clear link between good governance and stability. Debt is rising, many low income countries face debt distress. It is often opaque, closed. Macroeconomic effects may be dire, public accountability is undermined. The credibility of debt management is undermined. We’re seeing complex modes of financing, often opaque. I think it’s important to go back to the basics, we’re not just talking about central government debt but also local governments, but also state enterprises. Contingent liabilities, from public private partnerships that cause fiscal stress down the road.
Creditors have an important role in disclosure, lending etc. What can be done? There’s no single solution. Strengthening governance: IMF has been recommending reforms, publishing procurement data etc. There are also several initiatives and guidelines: the two pronged approach, the sustainability analysis, public debt management guidelines, many other standards and guidelines. What is key is implementation of these standards. We need to reform institutional and legal frameworks. The proliferation of confidentiality of public debt clauses: they give broad discretion to policy makers. Narrowing the grounds for confidentiality needs to happen.
Daniela: Can you please take us through the crisis around debt, and what is role of corruption within the crisis?
Kjetil: Unsustainable debt can be the result of predatory lending, but also exogenous impacts like covid etc. There is little transparency, it can quickly lead to over borrowing because it is hidden from the public, and to unsustainable debt burden. In Senegal, an IMF found in an audit their hidden debt. Would you have lent in a situation where this was public? Crucial to know the guarantees that were given. Lack of debt transparency doesn’t in itself lead to corruption. There is predatory debt: debts that are too expensive, deliberately lacking transparency. You also have odious debt, contracted by illegitimate regimes, which was mostly repaid. If a lender keeps a loan secret, they should not expect repayment. How do we prevent corrupt loans from taking place?
We want guidelines for responsible lending. They are not binding, we want to see them become binding. We can do this through the UNCA to add a protocol to make it illegal. It would require some changes in national law, and would send a strong signal to lenders and borrowers. We say it’s the worst debt crisis, it’s because of the debt service. The IMF says it’s a liquidity crisis. But we focus on the development aspects. It is about the servicing and the development compromises of paying that.
Daniela: Public debt is becoming an issue. What is the role of accountability in debt management? Where do you see the connection between traditional work on open budgets, and with public debt now?
Sally: We know systems are based on power, embedded in exclusion, those who need the services the most often have the least voice in how resources are raised and spent. Debt is a critical issue now, when we see debt service costs so high, they start to crowd out financing of essential services and service delivery. It causes people to rely on unpaid care by women. It’s not just that debt is bad, it can also be very good. We must invest in public services. How do we distinguish between good, bad and ugly debt? It has a fundamental accountability problem other financial issues do not. Debt is intergenerational. It impacts your children, you’re not thinking ‘can we repay it’ in several years. The lag creates an accountability issue. It is also about awareness: how often do the public learn about public debt until it is too late. There are fundamental debt issues with the way debt is created: power concentrated to executives. What role does parliament really place in providing robust oversight? What is the legal framework? What political independence do they have to oversee debt? What do audit institutions have a role to play? How can they help us understand whether it was ‘good’ or ‘bad’? There must be more discussion of debt in budget processes. Many budget documents have simplistic reporting on debt issues, yet it has such an impact on fiscal policy. It should be understandable by every citizen. Domestic accountability is not just a disclosure problem, but we must also work with all stakeholders.
Daniela: We need to first know to whom, for how much, is owed. How do we guarantee that overseeing institutions exercise this? For the case of Mozambique, we saw an interplay of resources lost from loans due to corruption. We could see this odious type of debt. We saw how corruption was the driver of the decision on Mozambique in the first place. How the lack of accountability opened the door for hidden debt and for crisis. What was the interplay between corruption and the debt crisis?
Aslak: On hidden debt in Mozambique, I researched for a couple of years the consequences of the hidden debt scandal. This was predatory lending, which created odious debt and had catastrophic consequences economically, politically and socially. It started in 2012, it involved a middle eastern company who bribed senior Mozambican politicians to sign off on a scheme of $2bn of debt. They did so without informing the parliament. It also involved greedy bankers from the London branch of Credit Suisse. It cost Mozambiquans about $403 dollars per person. It pushed 2 million people below the poverty threshold. The current debt crisis in Mozambique is huge, and it has an increasingly enormous domestic debt. It puts a lot of pressure on all kinds of other spending; social spending, due to the burden.
Daniela: Something that is key in the case of Mozambique, is that corruption was the driver. Credit Suisse and the investment group were the ones taking decisions. One of the main drivers of the issue we’re discussing is systemic issues. Some of your main policy asks for FfD4 are on UN conventions on debt and on a tax framework.
Kjetil: We will travel to FfD4 in New York after this. We would like safeguards. The first key ask from civil society is a global debt registry. There is a lot of information gathered by the World Bank, the OECD and paid sources, but it’s not accessible to civil society and even to parliaments. The principle should be that if the loan is not in that registry, it should not be enforceable. It should be one public debt registry; it should include every loan. All should be disclosed within thirty days. It should cover all contingent liabilities. Secondly, binding responsible lending and borrowing guidelines. Also a paragraph on parliamentary oversight. Then there is a proposal to make predatory lending illegal, it is mentioned in the first draft. But it will have to be enacted in a different process. We are asking for a protocol to be added. We want to see this being negotiated through a UN framework convention on debt.
Daniela: Sally, can you talk about accountability? How do you see this looking in practice?
Sally: Financing for Development is such a critical point for putting it on the table. There seems to be some sort of commitment that something needs to be done. Narrowing the space for what governments can get away with is so important, and commitments must be enforceable. Yes there are databases, but why was 40% of Senegal’s debt not disclosed? They must be enforceable. Parliamentary commitments are a step forward, but it must go beyond parliaments. There is not yet a commitment for governments to engage with the public. How can that not be the role of FfD4? A lot of transparency mechanisms were designed by lenders. A lot of the debt reports, including Debt Sustainability Analyses, are done by technical experts. They are not meant for normal people, they lack country context. How do we build the demand side? Governments won’t disclose until we ask for it. How do you bring in the media, bring in coalitions, get parliamentarians talking?
Daniela: We are seeing how civil society is losing their voice.
Aslak: When the IMF produced a report on Mozambique in 2019, it only included reference to the situation in a footnote. When thinking about this, it would be useful to draw lessons: while the IMF did not cause the corruption scandal, it was important in the context of the IMF. It helped create the environment for it. It helped create what WBG economists have called the ‘presource curse’; it began even before extraction. The IMF entertained it; they talked in 2015 of economic growth, gas income would become something like $500bn. They saw this as an enormous opportunity for enrichment and they wanted the cash as soon as possible; they created this economy of expectation
Alessandro: IMF includes governance and anti-corruption measures. Embedding measures in lending, so called conditionality, is a tool to encourage good practices. We talk a lot about in-country ownership. What are the key reforms? Better legal definition of public debt. Centralising roles and mandates. We need comprehensive and mandatory debt reporting, especially important for things like Public Private Partnerships (PPPs). We also need internal and external monitoring control. Parliamentary committees, fiscal councils etc should foster accountability. We also need evidence for citizens – information acts. Capacity development in member countries. Public debt confidentiality clauses. Making public debt public and not confidential. Engaging creditors, announcing debt transparency; for example Japan. Also efforts from IFIs; debt collection policies. It’s not about one actor.
Daniela: It was interesting to hear about engaging creditors, let’s also discuss the role of private creditors. Looking back at their role in the Mozambique case. I would also mention the IMF’s work around governance diagnosis.
Questions and answers
CSO representative from Uganda: Why are domestic areas not considered as public debt? Is it possible to consider that now? Loan negotiations. One of the biggest problems, countries give up assets and then it’s too late.
Alberta Hagan, consultant from Ghana: Global debt registry – could IMF not require nations to publicly publish these debts so they are disclosing, which will link to the global registry? Could be part of the annual Article IV consultation. On Mozambique, where a large percentage of the debt later came as a footnote, could CSOs encourage the IMF to feature disclosures in the reports, and be more engaged on this?
ED of a Foundation in Nigeria: IMF on the Corruption Perception Index, Nigeria is 150 over 180. Money was stolen. Civil society’s voice is not there in Nigeria. I want the IMF to give us the global debt registry, civil society can use it to understand governments like Nigeria. Debt management and hidden loans leads to insecurity, organised crime, institutionalised corruption, and back door debt from China. Nigeria’s debt is probably much higher than the government says.
Alessandro: On public arrears, you’re right – it depends on loans and securities being defined. That’s why the definition of public debt needs to be defined also by securities. On parliamentary oversight, it’s a good question, we’ve made progress. Often parliaments say there’s no overship. That depends on internal demands. But we do meet different stakeholders. I think there is an issue on capacity building of parliamentary committees. On including a box on CSOs views, we do talk with CSOs. It’s good to look beyond the footnote. On the public debt registry, there are limits to what we can do. When there is conditionality, there are cases where public debt disclosure is included. It depends where debt reform is macro critical. I will point to the World Bank as a public debt register; there is something to be said for reconciling existing registries and mapping existing data.
Kjetil: We would say the creditor shouldn’t be responsible for the registry, it should be held within the United Nations, but it’s important it’s publicly accessible. One thing I didn’t mention is the enablers for corruption: international banks, institutions that offer the money, and the secrecy that they provide. We should require proper beneficial ownership registries, and better transparency. The demand for corrupt practices is there because people can get away with it. To the IMF, how can we change the incentive structure for lending?
Daniela: In the current graph of the document for FfD4, we have included a proposal on the regulation of professional service providers who are the enablers: banks, agents etc.
Sally: How do we get parliaments really providing robust oversight? Some of the research we’ve done shows that tax and spending is what people care about; it’s a short term bias. That can and should change. We think there needs to be better connections between budgets and debts. Pre budget statements set fiscal ceilings which helps decide borrowing levels. Setting out a debt strategy that is robustly discussed should happen at the beginning; ex ante discussions are helpful. Some countries have departments that provide independent and targeted analyses. Also establishing specific standing committees where they regularly review debt issues. On audits, how do we determine if it’s good, bad or ugly? Supreme Audit Institutions need to be performing audits of specific loans. Before and after, so you have evidence which you can use to fight back against loans.
