The International Monetary Fund (IMF) has issued a strong warning to governments across the world, stressing that failure to improve transparency in borrowing could drive up financing costs, weaken investor confidence, and increase the risk of debt crises.
In a blog post released on Tuesday, the IMF’s Deputy General Counsel, Yan Liu, cautioned that hidden debts and opaque borrowing practices are undermining global economic stability.
She noted that global public debt is projected to reach almost 100 percent of GDP by the end of this decade, surpassing the record levels seen during the pandemic.
According to her, rising debt servicing costs and shrinking fiscal space are already squeezing budgets in many emerging and developing economies.
This, she warned, leaves governments with less room for critical social spending and investments in infrastructure, healthcare, and education.
Liu highlighted a troubling trend in the way countries are contracting loans through complex instruments such as securitised debt, collateralised loans, and guarantees linked to state-owned enterprises or public-private partnerships.
These obligations often remain outside official debt statistics until they surface during crises.
“When revealed, hidden debt can erode confidence in government institutions, damage credibility in fiscal data, and trigger sudden spikes in borrowing costs,” Liu wrote.
“If such obligations are large enough, they can undermine debt sustainability and even precipitate a full-blown debt crisis.”
To address these risks, the IMF urged governments to adopt robust legal frameworks that define public debt clearly, specify which institutions are authorized to borrow, and mandate comprehensive disclosure of obligations.
A recent IMF review of debt-related laws in 85 countries revealed worrying gaps: fewer than half had legal requirements for debt management and fiscal reporting, while many excluded state-owned enterprises and sub-national entities from the definition of public debt.
“This legal blind spot creates opportunities for liabilities to accumulate off the books,” Liu noted, adding that state audit institutions should be empowered to scrutinize debt operations and publish their findings for public accountability.
The IMF stressed that transparency should not be treated as an optional reform but as a public good that builds trust, lowers financing costs, and strengthens resilience.
“You can’t manage what you can’t see,” Liu emphasized.
“To restore investor confidence, countries must put their house in order, starting with the right laws backed by strong institutions that enforce them.”
The global lender pointed to recent crises in countries like Zambia, Sri Lanka, and Ghana, where undisclosed debt obligations worsened fiscal vulnerabilities and delayed restructuring negotiations with creditors.
Analysts say such episodes show why full disclosure is not only a matter of good governance but also critical to maintaining access to international capital markets.
For example, Zambia’s hidden loans to Chinese creditors came to light only during its 2020 default, complicating restructuring talks and prolonging its exclusion from financial markets.
Similarly, Sri Lanka’s undisclosed guarantees to state-owned enterprises deepened its debt crisis, forcing the country into a painful IMF-supported adjustment program.
For African economies, including Nigeria, the IMF’s message is particularly relevant.
Nigeria’s debt profile has grown significantly over the past decade, with debt servicing consuming a rising share of government revenues.
Experts have raised concerns about transparency in borrowing, especially around sovereign guarantees, joint venture liabilities, and public-private partnerships.
Dr. Ayo Teriba, CEO of Economic Associates, told reporters that greater openness in Nigeria’s debt reporting would reassure investors and potentially lower the country’s risk premium.
He noted that foreign investors are more likely to provide long-term financing if they trust that a government’s balance sheet accurately reflects its true obligations.
The IMF has stepped up its campaign for debt transparency in recent years. Its 2023 policy paper, “Making Public Debt Public,” identified major disclosure gaps in low-income and emerging economies.
The Fund now requires countries under debt-limit policies to provide more granular reporting, including publishing the holders of their public debt.
Additionally, the IMF has delivered over 200 technical assistance missions on debt management in the past two years, alongside legal reviews, diagnostic assessments, and advisory support to strengthen institutional capacity.
Analysts say governments that embrace transparency will benefit from lower borrowing costs, improved credit ratings, and stronger investor confidence.
Conversely, those that continue to hide debts or operate in secrecy risk higher financing costs and exclusion from international markets.
Ultimately, the IMF argues, debt transparency is about more than numbers—it is about building public trust, ensuring accountability, and creating fiscal space for development.