By Toby McIntosh
The International Monetary Fund, which prepares detailed assessments of sovereign debt risks, has decided to keep some of its conclusions confidential.
The IMF’s nondisclosure decision came as it adopted “a state-of-the-art toolkit for the analysis of sovereign stress.” To avoid “potentially adverse market reactions,” as a staff report put it, some assessments will not be released to the public.
Criticizing the decision, the head of Debt Justice, a British nongovernmental group, said that keeping the assessments and methodologies secret will make the IMF less accountable.
Some IMF Executive Directors (EDs) unsuccessfully argued for full public disclosure of the assessments during a Jan. 14, 2021, meeting about the new “Sovereign Risk and Debt Sustainability Framework for Market Access Countries” (MAC SRDSF). The directors’ discussion is summarized (without names) in an IMF press release (here, along with the underlying staff report and an FAQ document).
The EDs decided that “near-term” risk signals and assessments of the sustainability of country debt should not be disclosed during the first 12 months of using the new methodology. This will “give the authorities time to familiarize themselves with it,” according to the FAQ document on the policy. The confidentiality decision may be revisited after 12 months.
On Aug. 8, 2022, the IMF issued lengthy staff guidance on the new system that includes instructions on what to delete. “During the 12-month period, the following information will be dropped from published staff reports: the three-zone sustainability assessment in non-exceptional access program cases, and the near-term risk signal and assessment in surveillance and precautionary program cases,” according to the IMF.
The disclosure change required modification of the IMF’s transparency policy. The changes were outlined in a 25-page staff memo referenced in the overarching guidance of Aug. 8 (see link at footnote 124).
The staff explained that “while the Transparency Policy (TP) generally allows for deletion of market sensitive information on a case-by-case basis, deleting the near-term sovereign risk assessment on this basis could, in itself, send an implicit negative signal to markets.” To avoid this, the paper said, “Having a general, not country specific carve out for the publication of the near-term sovereign risk assessment for all market-access country cases would help mitigate the risks that such signal is emitted.”
The IMF decision was criticized by Tim Jones, Head of Policy at Debt Justice, who told EYE:
The IMF has a long history of lending more money to countries in debt crisis, effectively bailing out private lenders by enabling their high interest loans to be repaid. By keeping the methodology behind its debt assessments secret, the IMF is helping this to continue. Civil society and media should be able to see the full assessments, so that the IMF can be held to account on its judgements as to whether or not debt is sustainable. Where debts are not sustainable, lenders should be made to cancel debt, rather than be bailed out.
The staff guidance does not reveal the IMF’s methodology in detail. This clear from a sentence on page 100: “Since the methodology by which the Fund makes its sustainability (and thus lending) decisions is potentially market-sensitive, the precise aggregation method and the index cutoffs determining the three signals are strictly confidential and must remain internal to the Fund.“
Jones commented, “It is market-sensitive because if public it would make it clearer to private lenders if they are going to be bailed out by the IMF or not. But we argue this is a good thing, as would make those lenders more responsible.”
The new framework applies to advanced and emerging market economies that typically have access to international capital markets. Another process applies to low-income countries (LICs). A different assessment system applies to low-income countries, a joint framework by the IMF and the World Bank for debt sustainability assessments (DSAs), with the results released here.
