$1 trillion is in hidden debt globally – IMF

Globally, there is about $1 trillion in hidden debt—borrowing for which a government is liable, but which is not disclosed to its citizens or to other creditors, the International Monetary Fund (IMF) has said.

The Fund explained that while this debt—by its nature—is often kept off the official governments’ balance-sheet, it is very real, reaching $1 trillion globally by some estimates.

While these undisclosed obligations are not large when compared to global public debt topping $91 trillion, they pose a growing threat to low-income countries, already highly in debt with annual refinancing needs that have tripled in recent years.

“The problem is even more pressing amid higher interest rates and weaker economic growth. Accountability, too, is imperiled without accurate information about the extent of borrowing, which heightens the risk of corruption,” a publication by the Fund titled “Hidden Debt Hurts Economies, Better Disclosure Laws Can Help Ease the Pain” said.

 

It further stated that these potentially dire consequences can be avoided by strengthening domestic legal frameworks.

“In many countries, a narrow definition of public debt, in one or in multiple laws, permits some forms of sovereign debt to escape oversight.

“We recommend that the definition of public debt be broad and comprehensive, meaning that it should capture arrears, derivatives and swaps, suppliers’ credit, and assumptions of guarantees as well as loans and securities. The definition should also cover extra budgetary funds, public trust funds (pension funds, for example), and special purpose vehicles.

“A good example is found in Ecuador, which pursued legal reform in 2020 to ensure that short-term financing instruments—such as securities or treasury paper with terms of less than one year—were included in debt calculations and statistics. Other good examples include the legal definitions used in Ghana, Jamaica, Rwanda, Thailand and Vietnam, all of which encompass multiple types of debt instruments,” the Fund said.