Keeping an eye on the money we don’t have. Parliament’s oversight role on public debt

Always be prepared for the next crisis. It seems that public debt spiraling out of control is on track to becoming the next global crisis.

Did you know that twenty-five of the poorest countries currently spend more on debt repayments than on education, health and social policy combined? Sixty percent of low- and middle-income developing countries are highly debt vulnerable. Public debt is currently at the highest level globally in over fifty years and triple its 2008 level. National economies might collapse, as we have seen recently in Sri Lanka.

The origins of this situation are, among others, the COVID-19 crisis and its economic and financial impact, and debt management practices which might not have been very prudent.

But it is not all doom and gloom. There are ways to conduct public debt management in a responsible and accountable way. While public debt has traditionally been managed by the Ministry of Finance and executive agencies, there is increasing recognition of the unique roles for parliament in the governance of public debt. The role of parliaments is to ask questions, to scrutinize, to provide quality assurance of the process, and to ask what the priorities are. Parliaments are increasingly taking on this challenge, as we have seen in – for instance – Kenya, Zambia, Georgia, the Maldives, and the Caribbean.

In its submission to the UK House of Common’s International Development Committee’s inquiry, Westminster Foundation for Democracy (WFD) suggested that the UK’s international development policies can be strengthened by including a public debt accountability lens through an enhanced role for parliaments in oversight of public debt. There are six incentives as to why national parliaments in partner countries can play a more active legislative and oversight role with regards to public debt:

1. It serves as a catalyst for greater debt transparency.
2. It helps to establish and implement a stronger legal framework on public debt management.
3. It strengthens oversight over government policies and spending.
4. It protects the national interest in emergency contexts and highlights the gendered effects of public debt.
5. It unearths the risks of State-Owned Enterprises becoming a major cause of debt accumulation and debt crises.
6. It contributes to deliver the requirements of successful Nature-for-Debt swaps, hence contributing to action on climate change mitigation and adaptation, for which these countries are otherwise receiving insufficient multilateral support, and to climate change finance accountability.

These six arguments for parliamentary involvement in public debt management should incentivise the UK and others making parliamentary oversight on public debt management one of the criteria for their debt relief schemes. Strengthening the governance and domestic accountability in debt relief schemes will contribute to prudent debt management and more sustainable economies.

However, based on our interaction with a range of parliaments globally, there are three main challenges. Firstly, parliaments might struggle with the technical nature of public debt questions. MPs and parliamentary staff might feel weary and intimidated about the complexity of the subject matter. Secondly, parliaments often do not have access to the relevant data to exercise oversight on public debt as the documentation is not shared by the executive. Fortypercent of low-income developing countries have never published public debt data or have not updated information in the past couple of years, and lenders such as China apply strict nondisclosure clauses. So, there is a need to bridge the information disconnect between the executive and the legislature. Thirdly, private sector lending has increased sharply in recent years, accounting for nearly 20% of loans to east and southern Africa. Often sold on to other private companies, including hedge funds and vulture funds, private lending is notoriously opaque as revealed by scandals in countries ranging from Mozambique to Malaysia.

To assist parliaments in facing these challenges, WFD is rolling out targeted support to parliaments through pilot assessments in public debt oversight, tailor-made learning and knowledge building, and parliamentary assistance programmes.

Together with the National Democratic Institute (NDI), WFD recently published four new policy briefs. The briefs explain that, while most countries do have a financial administration act, far fewer countries have specific public debt legislation in place. Setting a legal framework for public debt management is one of parliament’s key tasks. The briefs outline best practices in the implementation and monitoring of a legal debt framework and the ratification of loan agreements. Beyond parliament’s legislative role, the briefs also cover parliament’s oversight role of public debt, and oversight over public debt in emergency contexts. The way how public debt was managed during the COVID-19 crisis has informed the brief on emergency context, though it is applicable to other potential future emergencies as well.

In addition, WFD developed a baseline assessment methodology on parliaments and public debt oversight and an e-course for parliamentarians, parliamentary staff, civil society and those engaged in public financial management. The e-course explores the concepts, mechanisms and risks which impact public debt management, and brings together expert contributors, country examples and interactive exercises.

In conclusion, it is worth mentioning that parliament’s capacity to oversee public debt management is very much linked to the depth of parliamentary scrutiny throughout the budget cycle, the resources available to committees, parliament’s oversight practices in general, and its ability to work collaboratively with civil society to enhance the political space to upscale transparency.

Solid and accountable public debt management is not only the task of the government borrowing money. It is also a responsibility of the lenders -- lending countries and lending international institutions -- to ensure due diligence of the viability of the economic projects and of the rationale underpinning borrowing requests. Hence, the current initiative of revitalizing the UNCTAD principles on the promotion of sovereign lending and borrowing cannot be timelier and will hopefully contribute to avoiding a next global crisis of public debt spiraling out of control.

Franklin De Vrieze,
Head of Practice Accountability, Westminster Foundation for Democracy.