The role of parliaments in managing public debt

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21 April 2022
Authors
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Corina Rebegea
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Frieda Arenos
Commentary

The role of parliaments in managing public debt

Unsustainable and opaque debt is a democratic deficit. New briefs by the National Democratic Institute and WFD explain how parliaments can ensure governments take on debt responsibly and in ways that benefit citizens.

 

The COVID-19 crisis continues to adversely impact the global economy, leading national governments to borrow and incur high levels of debt. The current global debt volume is the highest in 50 years and triple that of global 2008 levels, with 60 percent of low- and middle-income developing countries classified as “highly debt vulnerable.” While governments may take on debt for good reasons – for example in response to the pandemic, to invest in infrastructure projects or to help reach the Sustainable Development Goals – the social cost of unsustainable debt can be devastating, particularly for women and marginalized groups. For example, in 2021, 25 of the world’s poorest countries spent more on debt service payments than on health, education and social protection combined.

In many low-income developing countries (LIDC), public information about debt is limited, if at all available. The World Bank found that as of November 2021, nearly 40 percent of LIDCs had never published debt data or had not updated information in the last two years. With greater debt transparency comes more effective debt governance. This in turn reduces the costs for governments in the long run, benefits creditors and improves the ability of citizens to hold governments accountable for how they spend public money. Without transparency, accountability is also hindered. This is particularly true if oversight bodies – the most important of which are parliaments – are unable to access important information about debt.

Governments are responsible for budgeting, borrowing and spending, while parliaments have a responsibility to ensure governments are executing spending decisions that deliver on the needs of citizens. The pandemic exacerbated challenges – whether weak legal frameworks or limited technical capacity – faced by many parliaments to address public debt. To meaningfully overcome these, parliaments globally must first strengthen oversight and accountability mechanisms. Second, they must codify the engagement of various stakeholders – governmental and non-governmental – in debt discussions and decision-making.

Debt Briefs: Guidance for Parliaments on Addressing Public Debt

Over the last year, NDI and WFD worked together with parliaments and public debt experts to develop four policy briefs on the role of parliaments in debt transparency and debt sustainability.  

The NDI and WFD policy briefs fill a knowledge gap on parliamentary roles and good practices    related to public debt. They are structured into four key themes – 1) General debt management; 2) Debt management legal frameworks; 3) Oversight of debt management; and 4) Debt decision-making and oversight in emergency contexts. Each brief highlights the important components that lead to effective debt management, in addition to noted constraints.

On the issue of oversight, for example, the briefs examine four factors essential for effective parliamentary scrutiny:

  • Ensuring debt transparency and improving the quality of debt data;
  • Shaping debt oversight through the different stages of the budget cycle;
  • Knowing the key players in parliamentary oversight on debt; and
  • Understanding the roles of executive agencies involved in debt management.

Public debt can accumulate to manageable levels in times of crisis; and the briefs provide guidance and information on parliament’s role. On a time-limited basis, parliaments may delegate emergency authorities, but they also must still ensure a strong legislative framework for escape clauses for fiscal rules, contingency funds and other sources of emergency support. As representative bodies, they also must continue to emphasize the importance of gender-based analysis to understand the disproportionate impact of crises on women and historically marginalized communities.

Finally, the policy briefs provide a basis for increased awareness and engagements with parliaments around the world. NDI, WFD and partners across global parliaments will continue to collaborate to support parliaments in public debt management through country assistance programmes, pilot assessments and further tailor-made learning, such as an e-course on public debt management.

As the world continues to grapple with the impacts of the pandemic and other crises, parliaments everywhere remain on the front lines of addressing such challenges, including through effective public debt management. As the representative body of the people, their work to ensure governments deliver, especially in crises, is crucial to the wellbeing of citizens everywhere.

What's in the policy briefs

Policy brief title

Highlights

1. Debt Management for Parliamentarians

  • Key concepts and definitions in public debt management
  • Entry points for parliament to influence public debt management

2. Debt Management Legal Frameworks

  • Motivations and components of robust legal frameworks
  • Loan agreement ratification

3. Role of Parliament in Oversight of Public Debt

  • Debt transparency and data accessibility
  • Oversight throughout the budget cycle
  • Key players in effective management of public debt

4. Debt Decision Making and Oversight in Emergency Contexts

  • Legislative powers and emergency financial assistance
  • Fiscal rules and escape clauses
  • Key actors in parliamentary oversight in emergency contexts
  • Gendered effects of public debt in emergencies

 

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