As the Summit for Democracy gathers in Seoul from 18 to 20 March 2024, delegates will explore the theme ‘Democracy for Future Generations’. Reviewing Summit preparations over the past months, it seems that one of the most defining topics for future generations won’t be on the agenda: public debt. When debt is spiralling out of control, a country’s public services tend to be cut, the most vulnerable people in society are further marginalised, and the benefits of democracy for future generations becomes all the harder to attain. Debt transparency, more rigorous debt accountability to parliament and robust civil society monitoring are key to the solution.
The world is facing a new debt crisis. Twenty-five of the poorest countries spend more on debt repayments than on education, health, and social policy combined. Sixty percent of low- and middle-income countries are highly debt vulnerable. In its latest International Debt Report, the World Bank revealed the sharpest rise in global borrowing costs in four decades.
The origins of this dire situation are both historical and more recent. They include global power dynamics, international and regional barriers to trade and infrastructure development, national political histories and governance decisions around economic development, and climatic and other natural disasters. More recently, public debt was exacerbated by the COVID-19 crisis, Russia’s invasion of Ukraine, and the climate emergency – and their economic and financial impacts – as well as sometimes dubious national borrowing decisions.
Alongside the rise of new country and institutional lenders over the past 25 years, with different approaches to transparency and terms of lending, there is increasing discussion about the nature and governance of traditional multi-lateral lending institutions and the role of credit agencies. However, decisions on how, when, and for what purposes debt should be taken on lie with national decision-makers. Improving the governance of debt decision-making, and monitoring of its usage, should therefore start at this level.
Breaking out of the current debt crisis and avoiding future ones will require a fundamental shift in oversight and accountability for the way that governments borrow and manage debt. In this context, there is increasing recognition of the unique roles for parliament in the governance of public debt, as identified in WFD’s written submission to the UK House of Commons International Development Committee's Inquiry. And by extension, there will be an increased role citizens and civil society to engage in public debt debate and scrutiny through their representatives in parliament, with traditional and social media important conduits.
Parliaments, as representatives of people’s interests, as well as lawmakers and agents of accountability, are critical fiscal policy institutions responsible for approving the annual budget and overseeing the government’s execution of its approved programme. Meanwhile, debt managers are responsible for ensuring the government’s financing needs are met at the lowest cost over the medium-to-long term, consistent with an acceptable level of risk, and other objectives such as supporting domestic debt market development.
While parliaments have a responsibility to ensure governments are executing spending decisions that deliver on the needs of citizens, their ability to exercise this responsibility depends primarily on the level of transparency on public debt. In practical terms, that means transparency of the debt management strategy; the annual borrowing plan; regular debt reports; terms and conductions of individual loans; information on contingent liabilities and the management of state-owned enterprises.
In addition, there is need for parliaments to debate and approve the public debt management strategy, gaining a role in the ratification of loans agreements, and exercising oversight of the political choices underpinning the projects which are funded by loans.
However, parliamentary oversight of these political choices often faces the challenge of executive dominance. In some countries, it means that, for instance, the President might request MPs to adopt proposals, vote for projects, or increase the debt ceiling while the MPs know that this is not a sound policy. I learned that, in those circumstances, MPs may sometimes feel that they have no choice but to approve requests by the executive, as their position in parliament or within their party – and in extremely worrying cases their personal security and the safety of their family – can depend on it.
This means that debt transparency is not sufficient. There is need for a corruption and patronage lens to fiscal and debt policy. When the national budget is inflated by imprudent projects requiring large loans, it is indebting the country for generations to come. In these circumstances, public debt can be called “budgeted corruption”.
Therefore, in addition to more rigorous oversight by parliaments, civil society also needs a more robust role. CSOs and academics, with expertise in fiscal and debt policies, can play a complementary monitoring role, reinforcing parliamentary scrutiny. The role of the Institute for Public Finance in Kenya is a commendable example.
Unsustainable and opaque debt is a democratic deficit. It undermines the social contract which underpins a democratic system of governance. That is why Westminster Foundation for Democracy advocates for debt transparency, more rigorous debt accountability to parliament and robust civil society monitoring; in other words: doing debt democratically.
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As the Summit for Democracy gathers in Seoul from 18 to 20 March 2024, delegates will explore the theme ‘Democracy for Future Generations’. Reviewing Summit preparations over the past months, it seems that one of the most defining topics for future generations won’t be on the agenda: public debt. When debt is spiralling out of control, a country’s public services tend to be cut, the most vulnerable people in society are further marginalised, and the benefits of democracy for future generations becomes all the harder to attain. Debt transparency, more rigorous debt accountability to parliament and robust civil society monitoring are key to the solution.
The world is facing a new debt crisis. Twenty-five of the poorest countries spend more on debt repayments than on education, health, and social policy combined. Sixty percent of low- and middle-income countries are highly debt vulnerable. In its latest International Debt Report, the World Bank revealed the sharpest rise in global borrowing costs in four decades.
The origins of this dire situation are both historical and more recent. They include global power dynamics, international and regional barriers to trade and infrastructure development, national political histories and governance decisions around economic development, and climatic and other natural disasters. More recently, public debt was exacerbated by the COVID-19 crisis, Russia’s invasion of Ukraine, and the climate emergency – and their economic and financial impacts – as well as sometimes dubious national borrowing decisions.
Alongside the rise of new country and institutional lenders over the past 25 years, with different approaches to transparency and terms of lending, there is increasing discussion about the nature and governance of traditional multi-lateral lending institutions and the role of credit agencies. However, decisions on how, when, and for what purposes debt should be taken on lie with national decision-makers. Improving the governance of debt decision-making, and monitoring of its usage, should therefore start at this level.
Breaking out of the current debt crisis and avoiding future ones will require a fundamental shift in oversight and accountability for the way that governments borrow and manage debt. In this context, there is increasing recognition of the unique roles for parliament in the governance of public debt, as identified in WFD’s written submission to the UK House of Commons International Development Committee's Inquiry. And by extension, there will be an increased role citizens and civil society to engage in public debt debate and scrutiny through their representatives in parliament, with traditional and social media important conduits.
Parliaments, as representatives of people’s interests, as well as lawmakers and agents of accountability, are critical fiscal policy institutions responsible for approving the annual budget and overseeing the government’s execution of its approved programme. Meanwhile, debt managers are responsible for ensuring the government’s financing needs are met at the lowest cost over the medium-to-long term, consistent with an acceptable level of risk, and other objectives such as supporting domestic debt market development.
While parliaments have a responsibility to ensure governments are executing spending decisions that deliver on the needs of citizens, their ability to exercise this responsibility depends primarily on the level of transparency on public debt. In practical terms, that means transparency of the debt management strategy; the annual borrowing plan; regular debt reports; terms and conductions of individual loans; information on contingent liabilities and the management of state-owned enterprises.
In addition, there is need for parliaments to debate and approve the public debt management strategy, gaining a role in the ratification of loans agreements, and exercising oversight of the political choices underpinning the projects which are funded by loans.
However, parliamentary oversight of these political choices often faces the challenge of executive dominance. In some countries, it means that, for instance, the President might request MPs to adopt proposals, vote for projects, or increase the debt ceiling while the MPs know that this is not a sound policy. I learned that, in those circumstances, MPs may sometimes feel that they have no choice but to approve requests by the executive, as their position in parliament or within their party – and in extremely worrying cases their personal security and the safety of their family – can depend on it.
This means that debt transparency is not sufficient. There is need for a corruption and patronage lens to fiscal and debt policy. When the national budget is inflated by imprudent projects requiring large loans, it is indebting the country for generations to come. In these circumstances, public debt can be called “budgeted corruption”.
Therefore, in addition to more rigorous oversight by parliaments, civil society also needs a more robust role. CSOs and academics, with expertise in fiscal and debt policies, can play a complementary monitoring role, reinforcing parliamentary scrutiny. The role of the Institute for Public Finance in Kenya is a commendable example.
Unsustainable and opaque debt is a democratic deficit. It undermines the social contract which underpins a democratic system of governance. That is why Westminster Foundation for Democracy advocates for debt transparency, more rigorous debt accountability to parliament and robust civil society monitoring; in other words: doing debt democratically.
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