Achieving the Sustainable Development Goals requires significant investments—in infrastructure, human capital, and climate change resilience. But governments in developing countries are often limited in their ability to mobilize domestic revenues or private investment.
Debt financing is critical for development, but unsustainable levels harm growth and the poor. Debt can be a useful tool if it is transparent, well-managed, and used in the context of a credible growth policy. But, too often, this is not the case. High public debt can inhibit private investment, increase fiscal pressure, reduce social spending, and limit governments’ ability to implement reforms.
Debt vulnerabilities have increased in recent years in emerging-market and low-income countries. The total external debt of low- and middle-income countries climbed 5.3% to $7.8 trillion in 2018. The share of IDA countries at high risk of debt distress or in debt distress has reached 50 percent as of July 2019. Assessments by the World Bank Group found that less than half the countries reviewed met minimum requirements for debt recording, monitoring, and reporting.
Debt management and transparency need to be top priorities so new debt adds to growth and promotes a favorable investment climate. Policy makers in borrowing countries need reliable debt information to make sound borrowing decisions. Creditors, donors, analysts, and ratings agencies need full information to assess country debt and assess investment opportunities. Citizens can hold governments accountable if they have transparency on the terms and purpose of debt.