Risk of debt distress can be analogous to standing too close to the edge of a cliff. Forces beyond out control, such as natural disasters, global economic downturns or falls in commodity prices can push countries right over the edge into debt distress. Indeed, the global economic crisis resulting from COVID-19 has pushed some countries closer to the edge and others over the cliff. For example, Lebanon was propelled into debt default for the first time in its history, when it halted a Eurobond payment of $1.2 billion in early March. In mid-April, the United Nations Secretary General called for creditors to grant all developing countries a “debt standstill”.

While the nature of public debt has changed in many ways, many weaknesses in governance systems have remained similar. Often the result is that economies appearing to be healthy or at low risk of debt distress are propelled into crisis by debt that was not publicly known or recorded as a result of secret debt agreements, contingent liabilities or bailouts of State-Owned Enterprises (SOEs). 

It is clear that there are significant risks associated with leaving governments to effectively manage public debt without proper oversight. Parliament needs to, among other things, set and modernize legal frameworks for debt management, properly examine and ratify loan agreements and oversee the riskiest generators of public debt – SOEs.

This brief examines the multifaceted role of parliament in the oversight of public debt and debt management. This brief was commissioned prior to the COVID-19 outbreak, when concerns were already being raised about rising public debt levels in developing countries.