Here We Go Again - The Case of Senegal

I was truly disheartened to read a recent news article that reported that the new government in Senegal has discovered that its public debt-to-GDP has been underreported by 10 percentage points, and its budget deficit-to-GDP understated by 5 percentage points.

This discovery was made when the new political administration asked for the financial records to be audited. As I write, debt-to-GDP is now estimated at 76.3% up from 65.9%, while the deficit is now 10% of GDP up from 5%.

An immediate consequence is that Senegal, which is under an IMF programme, has to reformulate its economic programme. An imminent IMF disbursement has been stopped. Another consequence is that their sovereign ratings have been downgraded by Moody's in the past few days.

This is not the first that a country has underreported nor will it be the last. By some 2024 estimates, undisclosed debt amounts to about US$1 trillion. That might be small if you consider that global public debt is US$91 trillion, but in absolute terms it's a lot of money.

The IMF and World Bank have highlighted the deeply concerning issue of underreported debt in developing, especially low-income, countries. Mozambique and Zambia are the poster-boys for undisclosed debt and its negative economic consequences.

Before we get to thinking this is just a developing country problem, it's good to remind ourselves of the infamous fudging of fiscal and debt numbers by Greece in the 2000s, apparently similarly done by Italy and Portugal. Even Germany has been accused of doing some creative accounting of its budget numbers to meet EU benchmarks. The desire to underreport appears ubiquitous.

What facilitates underreporting: lack of oversight especially audits by supreme audit institutions. There are other factors - like the absence of legislation that requires disclosure, or narrow definitions of debt, or confidentiality clauses that prohibit disclosure.

Governments can certainly do more. I think as a start, governments need to modernize debt legislation and include disclosure provisions. I think that governments also need to adequately resource their supreme audit institutions to equip them to undertake not only financial audits, but performance and compliance audits as well. Sadly, not every government is so inclined. Parliamentary oversight committees also need to be established. Governments must also resist the urge to cave in to unnecessary confidentiality clauses in loan contracts. Finally, debt management offices need to widen their coverage of debt and, especially, report on guaranteed debt and other contingent liabilities.

Here in the Caribbean, good examples of disclosure requirements can be found in Bahamian and Jamaican debt legislation. Albeit, not consistently, Jamaica's Auditor General has begun undertaking compliance audits of the debt office. It's a start.

So, what's it to be? Where is the next Senegal or Greece or Mozambique or Italy. Debt transparency is a must not a maybe!