Debt Governance 2.0:

Governments have always accumulated obligations and exposures outside direct central-government borrowing. Yet the prevailing legal and institutional architecture for debt governance, which we refer to as “Debt Governance 1.0”, has developed primarily around discrete categories of public and publicly guaranteed borrowing. This leaves fiscal, quasi fiscal and external risks arising outside of the government’s balance sheet and through contractual and financing arrangements fragmented across institutions and legal frameworks, and poorly captured.

This gap is increasingly important to address. As low- and lower-middle-income countries seek to meet substantial infrastructure and energy investment needs under constrained fiscal and debt conditions, financing through state-owned enterprises and utilities, reliance on long-term offtake agreements, guarantees and project-finance structures can mobilize investment that might otherwise not occur. However, these arrangements can also defer or obscure public costs, particularly where returns depend on tariffs, subsidies, foreign-currency revenues or other public support.

How can governments preserve their capacity to mobilize essential investment while ensuring that public costs and exposures are properly assessed, authorized, monitored and reviewed? This roundtable will discuss how Debt Governance 2.0 could extend and build on the prevailing governance frameworks to achieve this goal, complementing existing controls with a dynamic approach to public financial risk governance.

Guiding Questions

• Why are financing structures outside traditional sovereign borrowing created, and what investment or policy objectives do they serve?
• How should economic, financial, fiscal and social viability—and the assumption sunderpinning each—be assessed together?
• Which risks should governments assume to enable investment, and which should remain with investors or other parties?
• How do risks evolve across contracts, institutions and balance sheets, and where do the resulting costs and losses ultimately fall?
• Who should assess and authorize public risk, and how should its expected cost be disclosed, budgeted and monitored?
• What information and warning signs should trigger reassessment, mitigation, repricing or renegotiation?
• How should responsibilities be divided among finance ministries, debt management offices, sector institutions, SOEs, regulators, central banks, public banks and oversight bodies?
• Which improvements require legislation, and which depend primarily on mandates, coordination and accountability?