The International Monetary Fund’s (IMF) Executive Board recently reviewed the IMF-World Bank Debt Sustainability Framework for Low-Income Countries (LIC-DSF), during which the review confirmed that the framework utilised was “fit-for-purpose”, but also identified areas for improvement.

The reforms introduce upgrades in three key areas: First, greater rigour in analysing debt risks by better differentiating between countries facing debt stress and those with unsustainable debt, through refined measurement of debt-carrying capacity and recalibrated thresholds.

Second, a broader lens on debt risks, including more systematic analysis of domestic debt vulnerabilities and better reflection of long-term challenges such as climate adaptation and development needs.

Third, enhanced objectivity through improved realism tools and stress tests, refined debt coverage criteria, and incentives for countries to improve public debt data quality and transparency.

The discount rate remains unchanged at five percent. The new framework is expected to become operational in the second half of 2027, with implementation for country documents issued after the 2027 Board summer recess.

Directors broadly agreed the reforms would help ensure the LIC-DSF remains fit for purpose. However, noting the increased complexity, they emphasised the importance of clear guidance, careful communication, and capacity development.

While a few directors advocated for full publication of model results in the interest of transparency, most agreed to temporarily restrict publication of the probability cut-offs used to generate the mechanical risk signal of unsustainable public debt, as well as the mechanical risk signals in individual debt sustainability analyses. A stand-alone staff note on the mechanical signal will be added to the ‘negative list’ under the fund’s Transparency Policy.