promote local (currency) bond market development. Similarly, establishing the correct legal and regulatory framework can ensure that such a market operates effectively. A debt management framework has the complementary benefit of also supporting the establishment of a secondary market for government securities.

Among LICs, weaknesses in debt transparency, notably in monitoring and reporting, are widespread, notwithstanding some recent improvements (Essl et al. 2019). This has reflected several factors. First, institutional arrangements are weak. Only four of 17 LICs met minimum requirements for debt reporting and evaluation (Essl et al. 2019). About half of LICs implement some form of fiscal rule. However, these rule do not seem to improve the countercyclicality of fiscal policy due to weak institutional environments in many LICs (Bergman and Hutchinson 2018). Second, LIC governments and state-owned entities have shifted towards non-traditional creditors. Several LIC sovereigns have accessed international financial markets for the first since the global recession (Ethiopia, Mozambique, Rwanda, Senegal, Tanzania, Tajikistan) often at terms that expose them to the risk of changing investor sentiment and rising borrowing cost. Non-Paris club creditors are playing a greater role in lending to LICs. China, for example, accounted for most of the doubling in cross-border claims on SSA economies between 2013 and 2017 (Cerutti, Koch, and Pradhan 2018; Dollar 2016). Debt to non-Paris Club creditors is not always officially reported on, and available documentation can be opaque, which can lead to “hidden” debt (Horn, Reinhart, and Trebech 2019).

# 2.4 Maintain adequate international reserves

Global international reserve assets have grown substantially since the 1998 Asian financial crisis (Figure 2). In 1998, total global reserves were valued at US$1.92 trillion and covered 48 months of imports. By 2018, total reserves were US$12.69 trillion and covered nearly 100 months of imports. The rise in reserves, however, has not been distributed evenly among countries. Economies in East Asia and the Pacific (EAP), ECA, LAC, and MNA have, on average, been able to increase reserves to more adequate levels since 2000. However, EAP, and especially SAR, have seen reserve levels decline since the crisis, and economies in SAR and SSA have not managed to improve reserve levels since 2000. Almost half of EMDEs appear not to have sufficient reserves to meet their balance of payments needs in 2019, according to the IMF’s reserves assessment metric.<sup>8</sup> Adequate foreign exchange reserves can mitigate currency volatility, reducing risks stemming from currency mismatches and volatile capital outflows (IMF 2011, 2015b). Following the taper tantrum of 2013, countries with larger reserve buffers saw less depreciation (BIS 2019). The reserve level that is sufficient to act as insurance against shocks depends on a country’s depth and liquidity of domestic financial markets, access to external buffers (such as central bank swap lines of IMF loans), and potential drains on the balance of payments (such as losses of export income, broad money, short-term

> 8 The Assessing Reserve Adequacy (ARA) metric is based on IMF (2011) and determines appropriate reserve cover on a risk-weighted basis covering short-term debt; medium and long-term debt and equity liabilities; broad money; and export earnings. Risk weights are based on observed outflows during periods of exchange rate pressure.