## 1. Country X: Debt Composition

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### Architecture of the Fund's Debt Sustainability and Capacity to Repay Safeguards
- March 2021: Fund introduced new enhanced safeguards (ES) for requests for new PRGT arrangements or augmentations.
- July 2021: ES elaborated and endorsed by the Board in context of increase in normal access limits and other PRGT reforms.
- Purpose: manage and mitigate credit risk by strengthening scrutiny of debt sustainability and Capacity to Repay (CtR).

### ES requirements for program documents
- Program documents must include:
  - ES1A: a granular discussion of the composition and evolution of debt.
  - ES1B: an enhanced CtR analysis informed by cross-country comparisons of metrics of Fund exposure.
  - ES2: discussion of the explicit program objective to reduce debt vulnerabilities.
- Presentation options:
  - ES1A and ES2 may be presented in a separate Annex (with brief reference in staff report).
  - ES1B may be included in the usual CtR section in program modalities.
- Scope exclusions:
  - ES do not apply to program reviews, emergency financing, or non-financial instruments.

### Circumstances when ES apply (thresholds and conditions)
- ES1A and ES1B apply when requests for new PRGT arrangements or augmentations entail access above 100 percent of quota annually or 300 percent of quota cumulatively (normal access limits before July 2021 increase to 145/435 percent of quota).
- For countries assessed at high risk of, or in, overall debt distress, all ES (ES1A, ES1B, ES2) apply, except in cases of exceptional PRGT access or high combined credit where ES2 does not apply.
- ES do not apply to RCF/RFI requests or to regular program reviews.

### Interaction with other Fund safeguards and procedures
- Exceptional Access Policy (EA) and Policy Safeguards for High Combined Credit (PS-HCC):
  - A financing request that triggers ES may also trigger EA and/or PS-HCC when combined PRGT and GRA access exceeds 145 percent of quota annually/435 percent cumulatively.
  - ES1A and ES1B apply at program request alongside EA/PS-HCC; ES2 does not apply because EA2/PS-HCC2 debt sustainability requirement is more stringent.
  - ES do not change EA/PS-HCC documentation/procedures; teams may include additional ES information in staff notes for informal EA Board meetings.
- High Access Procedures (HAP):
  - HAP triggers when PRGT access exceeds 240 percent of quota over 36 months (flow trigger) or credit outstanding to the PRGT exceeds 300 percent of quota at any point (stock trigger).
  - ES apply alongside HAP; ES do not change HAP documentation/procedures but teams may include deeper CtR discussion in staff notes.

### Illustrative multi-layered architecture examples (exact figures)
- Example 1:
  - 3-year ECF arrangement; country at L or M risk of debt distress; no PRGT credit outstanding; requested access 270 percent of quota equally disbursed per year → subject to HAP, but not subject to ES.
- Example 2:
  - 3-year ECF arrangement; country at L or M risk of debt distress; no PRGT credit outstanding; requested access frontloaded with 110 percent of quota in first year and 50 percent of quota per annum in following years (total 210 percent of quota) → subject to ES1A/1B, but not subject to HAP.

---

### 2. High risk of debt distress or in debt distress

### Debt composition, creditor treatment, and collateralization
- Multilateral creditors may enjoy de facto preferred creditor status (PCS).
  - PCS reflects special role of Fund, World Bank, and certain multilaterals; official bilateral and private creditors have often excluded such debt from restructuring perimeter.
  - Multilateral contributions to restructurings are rare and tend to involve new financing; stock relief is very unusual outside HIPC/MDRI.
- Collateralized debt may be more difficult to restructure:
  - Collateralization creates security interests in assets or revenue streams; collateral-like features and SPVs can extend claims to government resources.
  - Project financing often uses collateral; unrelated collateral (e.g., budgetary loans secured by commodity export revenues) and escrow accounts covering upcoming debt service can pose similar challenges.
  - Difficulty of restructuring depends on nature of collateral, jurisdiction, contractual terms, and bargaining power.
  - Collateralization does not make restructuring impossible; official creditors may condition treatment on treatment of collateralized commercial claims.
- Data and reporting:
  - Staff should report inadequacies in data on collateralized debt (non-disclosure agreements may limit availability).
  - 2021 Guidance Note on Implementation of the Debt Limits Policy provides guidance on assessing data inadequacies and remedial measures.
  - Debt conditionality can help address data gaps, limit new issuances of collateralized debt, and target reduction of existing stock.
- Write-up should describe specific collateralization features that complicate restructuring (examples: asset-backed obligations, SPV arrangements, commodity-backed earmarks).

### Analysis of composition and projected evolution of debt (CtR implications)
- Focus ratios:
  - a) Fund credit outstanding;
  - b) Fund plus World Bank and ADB/AfDB/IADB credit;
  - c) all IFI credit plus collateralized debt as share of total external debt.
  - b) indicates de facto senior debt normally not restructured; c) indicates structural rigidities.
- Reference statistics for LICs:
  - Average ratio of multilateral debt (including IMF) to total external PPG debt: 56 percent.
  - Median: 57 percent.
  - 25th and 75th percentiles: 38 and 77 percent, respectively.
- Interpretation:
  - High ratio of de facto senior/difficult-to-restructure debt may warn of elevated CtR risk but not determinative if overall debt and debt service ratios are low.
  - Combination of high risk/debt distress and high ratios would indicate elevated CtR risk.
- Program cases with envisaged restructurings:
  - If restructuring is envisioned under program, ES1A should not project evolution of debt broken down by creditor composition to avoid prejudging burden-sharing; a brief discussion based on latest data suffices.

### ES1A: Composition and evolution of debt (reporting expectations)
- Program documents expected to include:
  - Discussion of structure of public external debt and projected evolution, focusing on debt owed to the Fund and other multilaterals (de facto senior) and collateralized debt.
  - A table showing breakdown and ratios of debt composition as illustrated in template (Table 1).
- Debt Holder Profile table from 2020 Debt Limits Policy already requires breakdown on current debt composition.
- Definitions:
  - "Multilateral" = institutions with two or more sovereign members (and no non-sovereign member).
  - Collateralized debt may be harder to restructure; restructuring difficulty depends on type of security, contractual provisions, and circumstances.

### ES1B: Enhanced safeguards on Capacity to Repay (CtR) — dashboard and metrics
- Requirement:
  - Program documents must include discussion of projected Fund debt and debt service evolution relative to key economic metrics over repayment period, compared with other PRGT programs, supported by standardized charts from Finance Department (FIN).
  - If financing requests result in comparatively elevated CtR indicators, program documents must examine severity and explain how program design mitigates risks (access, phasing, conditionality).
- CtR Dashboard structure:
  - Eight metrics presented in panel charts (projections from year of request and following 10 years):
    - Six time-series indicators:
      - Three stock indicators: projected Fund credit outstanding relative to i) GDP, ii) gross international reserves (GIR), and iii) public and publicly-guaranteed (PPG) external debt.
      - Three flow indicators: projected annual debt service to the Fund relative to i) fiscal revenues (excluding grants), ii) exports of goods and services, and iii) PPG external debt service.
    - Two cross-section charts: highlight the highest peak credit indicators among the six relative to PRGT countries with top Fund credit exposures (the two most elevated metrics).
- Comparator group:
  - Baseline: all UCT-quality programs (including blends) approved for PRGT-eligible countries over the most recent decade.
  - Alternative comparator groups (e.g., FCS, presumed blenders) may be used rarely and require FIN justification.
- Elevated exposure interpretation:
  - Benchmarks: median and interquartile ranges for control group.
  - CtR risks generally acceptable if projections for all indicators lie below the 75th percentile; levels above the 75th percentile require deeper analysis.
  - Small or temporary deviations above triggers do not necessarily indicate elevated CtR risks; absence of metrics above 75th percentile does not guarantee absence of risks.
- Deeper CtR analysis when metrics indicate high risks:
  - Focus on drivers, size, duration above the 75th percentile, and economic significance.
  - Discuss authorities’ willingness/ability to implement reforms.
  - Risk-mitigating factors: access appropriateness, phasing, conditionality and program policies, country-specific factors (contingent liabilities, natural resource revenue prospects, prior claims such as earmarked revenues, escrow accounts, collateral).
  - CtR paragraph must state a bottom-line assessment in the topic sentence; to proceed, CtR must be at least “adequate.”
  - If CtR is elevated but manageable, assessment should be conditional (e.g., “CtR is adequate but subject to significant downside risks.”)
  - If CtR is weak, the request should not move forward unless program includes clear measures to restore CtR to at least adequate.
- Downside scenarios and realism checks:
  - Dashboard based on baseline macroeconomic scenario but may include downside scenarios (e.g., for precautionary arrangements).
  - CtR write-up should discuss downside scenarios and policy responses.
  - Revisions to macro framework during internal review require a revised CtR analysis and dashboard.
- Process:
  - Area departments share underlying data for CtR dashboard with FIN using standardized Excel file before posting on eReview.
  - FIN requires at least one business day to produce CtR dashboard and return to country teams.
  - Data underpinning control group samples updated annually by FIN.

### ES2: Reducing debt vulnerabilities in programs for countries at high risk of or in debt distress
- Requirement:
  - For countries at high risk of, or in, overall debt distress, requests for new PRGT arrangements or augmentations must include as a core program objective the concrete reduction of debt vulnerabilities over the program and beyond.
  - Typically involves reducing breaches of LIC-DSA thresholds, but assessment should be holistic and not purely mechanical.
- Relation to PRGT exceptional access:
  - ES2 is less stringent than PRGT exceptional access (PRGT-EA and PS-HCC), which require public debt to be assessed sustainable in the medium term with high probability and, for high risk/in distress cases, improvement to at least moderate within 36 months or arrangement period.
  - ES2 does not require medium-term sustainability with high probability; program expected to deliver reduction in vulnerabilities but not necessarily improvement to moderate within program period.
- Cases with ex ante unsustainable debt:
  - If debt is assessed unsustainable and program includes restructuring to restore sustainability, ES2 is automatically satisfied.
  - Fund financing is precluded unless member takes steps to restore sustainability in the medium term; approval predicated on member seeking debt treatment consistent with restoring sustainability.
- Focus and indicators under ES2:
  - ES2 should focus on evolution of LIC-DSA debt vulnerability indicators that breach thresholds under baseline during program period and beyond.
  - LIC-DSA external debt burden indicators: PV of PPG external debt to GDP and to exports; external PPG debt service to exports and to revenues. Overall public debt burden indicator: PV of total PPG debt to GDP.
  - Model-based signal compares projected evolution under baseline and shocks relative to statistically determined thresholds; thresholds vary by assessed debt-carrying capacity (low, medium, high).
  - High risk signaled when one or more indicators breach threshold in baseline.
- Implementation and judgment:
  - Breaches under baseline would typically need to be reduced to satisfy ES2, though not all breaches must be reduced continuously.
  - Composite picture should show clear overall improvement; temporary widenings must be explained.
  - Strong presumption that debt/GDP and debt/exports decline over program, supported by fiscal consolidation, debt limits, and expected growth; exceptional initial widening possible due to front-loaded access or shocks.
  - Debt service trajectories often fixed near term; where debt service rises, programs normally expected to include revenue mobilization policies.
  - Judgment should supplement mechanical signals where appropriate (e.g., climate change, unresolved arrears, pending debt operations, fragility/conflict).
  - Some countries have been assessed high risk despite not breaching LIC-DSF indicators under baseline.

---

### Annex I. Sample Write-up for Country X — Key Figures and Findings

### ES1A — Debt Structure and Projections: key findings
- At program initiation, share of de facto senior debt plus other multilateral and collateralized debt in total external debt is below 50 percent and projected to rise to 50 percent over the medium term under baseline.
- Debt held by institutions afforded preferred creditor status (IMF, World Bank, other major development banks) = 34 percent of external debt at program initiation; adding other multilaterals and collateralized debt brings total to 44 percent.
- Projected combined share of such debt = 50 percent of external debt by 2024.
- Total multilateral plus collateralized debt as share of GDP projected to decline from 32 to 22 percent of GDP under the program.

### Selected actuals and projections (levels as reported)
- Total debt: 11,477; 11,061; 10,650; 10,022.
- External debt: 10,099; 9,678; 9,267; 8,638.
- Multilateral creditors: 4,010; 3,881; 3,750; 3,615.
  - IMF and WB: 2,168; 2,080; 1,990; 1,896.
  - IMF: 992; 952; 911; 868.
  - ADB/AfDB/IADB: 1,327; 1,307; 1,288; 1,270.
  - Other Multilaterals: 514; 494; 472; 450.
- Bilateral creditors: 3,801; 3,518; 3,248; 2,990.
  - Paris Club: 2,136; 2,098; 2,065; 2,031.
  - Non-Paris Club: 1,666; 1,420; 1,183; 959.
- Private creditors: 2,288; 2,279; 2,269; 2,034.
  - Bonds: 1,373; 1,367; 1,361; 1,220.
  - Loans: 915; 912; 908; 814.
- Collateralized debt: 547; 567; 587; 609.
  - Related: 438; 453; 470; 487.
  - Unrelated: 113; 113; 117; 122.
- Domestic debt: 1,378; 1,383; 1,383; 1,383.
- Nominal GDP: 14,129; 15,933; 16,859; 19,456.

### Key ratios (percent measures)
- Multilateral debt as percent of external debt: 40; 40; 40; 42.
- Multilateral debt as percent of GDP: 28; 24; 22; 19.
- IMF and WB as percent of external debt: 21; 21; 21; 22.
- IMF and WB as percent of GDP: 15; 13; 12; 10.
- ADB/AfDB/IADB as percent of external debt: 13; 14; 14; 15.
- Collateralized debt as percent of external debt: 5; 6; 6; 7.
- Collateralized debt as percent of GDP: 4; 4; 3; 3.

### ES1B — Capacity to Repay (CtR) and risks (sample assessment)
- Baseline CtR assessment:
  - Country X’s capacity to repay the Fund is adequate under the baseline.
  - Stock of debt to the Fund as share of GDP remains at elevated levels, peaking in T+3 at almost 5 percent of GDP.
  - Debt to the Fund as share of exports and debt service as share of revenues and exports are not elevated; indicators of debt service to the Fund close to or below median for comparator group.
- Downside risks and stress scenarios:
  - Significant downside risks: failure of large energy projects, natural disasters, deterioration in security, materialization of fiscal risks.
  - Under a downside scenario assuming significant delays in energy projects, most Fund credit indicators exceed the 75th percentile of past PRGT arrangements.
- Mitigating factors:
  - Authorities’ strong track record of servicing Fund obligations.
  - Fiscal policy measures in program.
  - Governance-strengthening measures.
  - Smoothed phasing of Fund disbursements.
  - Country X not exposed to large contingent liability risks under energy contracts.
  - Structural reforms to support economic diversification.

### ES2 — Debt vulnerabilities and program effects (sample assessment)
- Debt distress classification:
  - Country X assessed to be in debt distress due to pre-HIPC arrears and official arrears to a Paris Club creditor currently being addressed with an agreement and repayment plan.
  - Absent these arrears, Country X would be at high risk of debt distress with all four external debt indicators and overall debt indicator above DSA thresholds in baseline.
- Expected evolution under program:
  - Debt vulnerabilities will be reduced; all five debt burden indicators show downward paths over course of program.
  - Baseline external and overall debt-to-GDP indicators remain above DSA thresholds until late 2020s due to pandemic financing needs and ongoing large LNG investments.
  - External debt service indicators expected to bottom out temporarily at DSA thresholds then resume downward trajectory as LNG exports and revenues are realized.
- Program measures supporting reduction:
  - Fiscal adjustments (revenue and wage bill measures).
  - Limits on non-concessional debt.
  - Prospective economic benefits from large LNG investments.
  - Enhanced natural resource revenue management.
  - Structural reforms for economic diversification and governance strengthening.

### Operational and procedural points (selected)
- When ES required:
  - For countries at high risk of or in debt distress, program/augmentation requests require ES1A, ES1B, and ES2 irrespective of access levels.
  - Requests for access above 100 percent of quota annual or 300 percent cumulative require ES1A and ES1B; ES2 not required if country at low or moderate risk.
  - ES required only for new financing arrangements or augmentations (not program reviews).
  - For exceptional PRGT access or high combined access, ES1A and ES1B required; ES2 not required.
  - If debt unsustainable and program includes restructuring, ES1A and ES1B required; ES1A should present only current composition data (no projected evolution); ES2 can be short and refer to DSA.
- Dashboard preparation:
  - CtR dashboard based on baseline scenario; FIN prepares charts from data provided by country teams before policy note or staff report finalization.

*Source: ppea2022028 - 1. Country X: Debt Composition; 2. High risk of debt distress or in debt distress; Annex I. Sample Write-up for Country X.*

### 1. Country X: Debt Composition__________________________________________________________________________ 7

### 1. Country X: Debt Composition

### Architecture of the Fund's Debt Sustainability and Capacity to Repay Safeguards
- In March 2021 the Fund introduced new enhanced safeguards (ES) that apply to requests for new Poverty Reduction and Growth Trust (PRGT) arrangements or augmentations.
- The ES were further elaborated and endorsed by the Board in July 2021, in the context of the increase in normal access limits and other reforms to the PRGT.
- The ES are intended to manage and mitigate credit risk to the Fund by strengthening scrutiny of debt sustainability and capacity to repay the Fund (CtR).

### ES requirements for program documents
- Program documents must include:
  - a granular discussion of the composition and evolution of debt (ES1A);
  - an enhanced CtR analysis informed by cross-country comparisons of metrics of Fund exposure (ES1B);
  - discussion of the explicit program objective to reduce debt vulnerabilities (ES2).
- Presentation options:
  - ES1A and ES2 can be presented in a separate Annex (with a brief reference in the staff report discussion of program risks).
  - ES1B can be included in the usual section on CtR in the program modalities section of the staff report.
- The ES do not apply to program reviews, emergency financing, or non-financial instruments.

### Circumstances when ES apply (exact thresholds and conditions)
- ES1A and ES1B apply where requests for new PRGT arrangements or augmentations entail access above 100 percent of quota annually or 300 percent of quota cumulatively (normal access limits before the July 2021 increase to 145/435 percent of quota).
- Where countries requesting new PRGT arrangements or augmentations are assessed at high risk of, or in, overall debt distress, all ES safeguards apply (ES1A, ES1B, and ES2), except that for cases of exceptional PRGT access or high combined credit, ES2 does not apply.
- ES will not apply to RCF/RFI (Rapid Credit Facility/Rapid Financing Instrument) requests or to regular program reviews.

### Interaction with other Fund safeguards and procedures (exact policy names and thresholds)
- Exceptional Access Policy (EA) and Policy Safeguards for High Combined Credit (PS-HCC):
  - A financing request that triggers the ES may also trigger the EA and/or PS-HCC (applicable when combined PRGT and GRA access exceeds 145 percent of quota annually/435 percent cumulatively).
  - In such cases, ES1A and ES1B will apply at the time of the program request, alongside the EA/PS-HCC.
  - ES2 will not apply since the EA and PS-HCC policies automatically satisfy ES2 given that the debt sustainability requirement under EA2/PS-HCC2 is more stringent (reducing the risk of overall debt distress to low or moderate).
  - ES do not affect documentation or procedural requirements under EA and PS-HCC, but teams may include additional ES information (e.g., deeper CtR discussion) in staff notes for informal EA Board meetings.
- High Access Procedures (HAP):
  - A financing request that triggers the ES may also trigger the HAP safeguards when a country’s PRGT access exceeds 240 percent of quota over 36 months (flow trigger) or credit outstanding to the PRGT exceeds 300 percent of quota at any point during the program (stock trigger).
  - ES will apply alongside the HAP.
  - ES do not affect documentation or procedural requirements under the HAP, but teams may include additional ES information (e.g., deeper CtR discussion) in staff notes for informal HAP Board meetings.

### Application of multi-layered architecture — illustrative examples (preserve exact figures)
- Example 1:
  - A request for a 3-year ECF arrangement by a country at L or M risk of debt distress with no PRGT credit outstanding for 270 percent of quota that is equally disbursed per year is subject to HAP, but not subject to ES.
- Example 2:
  - A request for a 3-year ECF arrangement by a country at L or M risk of debt distress with no PRGT credit outstanding for 210 percent of quota that is frontloaded with 110 percent of quota in the first year followed by 50 percent of quota per annum in following years is subject to ES1A/1B, but not subject to HAP.

### ES1A: Composition and evolution of debt (reporting expectations)
- Program documents are expected to include:
  - a discussion of the structure of public external debt and its projected evolution over time, focusing on debt owed to the Fund and other multilateral creditors, which may enjoy de facto senior status, and collateralized debt, which may be more difficult to restructure.
  - a table showing the breakdown and ratios of debt composition as illustrated in the template in Table 1.
- The breakdown on the current debt composition is already required as part of the Debt Holder Profile table required under the Fund’s 2020 Debt Limits Policy (DLP).
- Footnotes and definitions:
  - In this Guidance Note, multilateral refers to institutions with two or more sovereign members (and no non-sovereign member).
  - Collateralized debt may be more difficult to restructure given creditors’ security interests in sovereign assets or revenue streams; restructuring difficulty will depend on borrower and creditor decisions, type of security, contractual provisions, and circumstances of each restructuring.

*Source: ppea2022028 - 1. Country X: Debt Composition*

### 2. High risk of debt distress or in debt distress

### 2. High risk of debt distress or in debt distress

### Debt composition, creditor treatment, and collateralization
- Debt to multilateral creditors may enjoy de facto preferred creditor status (PCS).
  - PCS reflects recognition of the special role of the Fund, the World Bank, and certain other multilaterals and the public good nature of such financing.
  - Official bilateral creditors have been willing to exclude debt to those creditors from the perimeter of debt restructuring; private creditors have generally also recognized that exclusion.
  - Multilateral creditor contributions to debt restructurings have been relatively rare and tend to involve new financing; it is very unusual for them to provide debt stock relief (with the notable exception of the Highly Indebted Poor Country (HIPC) and related Multilateral Debt Relief Initiative (MDRI)).
- Collateralized debt may be more difficult to restructure.
  - Collateralization gives creditors a security interest in assets, revenue streams or other resources, complicating restructuring.
  - Collateral-like features (e.g., oil pre-payment agreements) and indirect collateral through Special Purpose Vehicles (SPVs) can extend claims to government resources.
  - Project financing often uses collateral (e.g., revenue streams or assets generated by the project), but financing can also involve “unrelated” collateral (e.g., budgetary loans secured by commodity export revenues).
  - Escrow accounts covering upcoming debt service can pose similar challenges as collateralized debt in restructuring.
  - The difficulty of restructuring a collateralized claim depends on the nature of the collateral, its jurisdiction, contractual features, and bargaining power among parties.
  - Collateralization does not make restructuring impossible; official creditors may condition treatments on treatment of collateralized commercial claims.
- Staff should report inadequacies in data on collateralized debt.
  - Full data on collateralized debt may not be available, including due to non-disclosure agreements; write-ups should note such data gaps.
  - The 2021 Guidance Note on Implementation of the Debt Limits Policy in Fund-Supported Programs provides guidance on assessing data inadequacies (including on collateralized debt) and remedial measures.
  - Where appropriate, debt conditionality can help address data gaps, limit new issuances of collateralized debt, and target reduction of its existing stock.
- The discussion should describe specific collateralization features that may complicate potential future restructuring.
  - Examples: asset-backed debt obligations where the asset’s revenue-generating stream has been pledged; SPV arrangements that extend claims to government resources; commodity-backed debt arrangements that earmark future revenues.

### Analysis of composition and projected evolution of debt (CtR implications)
- Guidance calls for analysis of composition and projected evolution of debt that may be de facto senior or potentially difficult to restructure.
  - Focus on ratios of: a) Fund credit outstanding; b) Fund plus World Bank and ADB/AfDB/IADB credit; and c) all IFI credit plus collateralized debt as a share of total external debt.
  - b) is a good indicator of debt that is de facto senior and normally cannot be restructured; c) indicates rigidities in external debt structure.
  - The write-up should also discuss the nature of collateralized debt.
- Considerations when assessing implications for Capacity to Repay (CtR):
  - A high ratio of debt that is (or may be) de facto senior or difficult to restructure may be a warning sign of elevated CtR risk.
  - For reference: the average ratio of multilateral debt (including the IMF) to total external Public and Publicly Guaranteed (PPG) debt in LICs is 56 percent and the median is 57 percent, while the 25th and 75th percentiles are 38 and 77 percent, respectively.
  - A high ratio by itself may not indicate elevated CtR vulnerabilities if debt and debt service ratios are low.
  - A combination of high risk/debt distress and high ratios of de facto senior/difficult to restructure debt would be a clear indicator of elevated risk to CtR.
- Program cases involving envisaged restructurings:
  - If a debt restructuring to restore sustainability is envisioned under the program, ES1A discussion and associated table should not include projected evolution of debt broken down by creditor composition to avoid prejudging burden-sharing; a brief discussion based on latest available data suffices.

### ES1B: Enhanced safeguards on Capacity to Repay (CtR) — dashboard and metrics
- Program documents must include discussion of evolution of projected Fund debt and debt service relative to key economic metrics over the repayment period, compared with other PRGT-supported programs, supported by standardized charts from Finance Department (FIN).
  - Where financing requests would result in comparatively elevated levels of key CtR indicators, program documents must examine severity of implied risks and explain how program design (access, phasing, conditionality) seeks to mitigate risks.
- CtR “Dashboard”: benchmarks a country’s Fund credit exposure against a comparator group and presents exposure metrics to signal cases of elevated risk.
- Economic metrics: the dashboard should present eight metrics illustrated in panel charts showing evolution of projected Fund credit and debt service for the country and the comparator group:
  - Six time-series indicators (projections from year of program request or augmentation and the following 10 years):
    - Three stock indicators: projected stock of Fund credit outstanding relative to i) GDP, ii) gross international reserves (GIR), and iii) public and publicly-guaranteed (PPG) external debt.
    - Three flow indicators: projected annual debt service to the Fund relative to i) fiscal revenues (excluding grants), ii) exports of goods and services, and iii) PPG external debt service.
  - Two cross-section charts: highlighting the highest peak credit indicators for the above metrics relative to PRGT countries with top Fund credit exposures, i.e., the two most elevated of the six metrics.
- Comparator group:
  - Baseline comparator group is based on all UCT-quality programs (including blends) approved for PRGT-eligible countries over the most recent decade.
  - Alternative comparator groups (e.g., fragile and conflict-affected states (FCS), presumed blenders) could be considered rarely and must be justified to FIN.
- Elevated levels of Fund credit exposure:
  - Benchmarks: median and interquartile ranges for the control group.
  - In general, CtR risks deemed acceptable if projections for all CtR indicators lie below the 75th percentile of the respective metric; levels above the 75th percentile require deeper analysis.
  - The comparison should be combined with staff judgment informed by macroframework, DSA, risk matrix, and other analysis.
  - Small or temporary deviations above triggers do not necessarily indicate elevated CtR risks; absence of metrics exceeding the 75th percentile does not guarantee absence of elevated risks.
- Deeper CtR analysis when metrics indicate high risks:
  - The write-up should focus on CtR indicators pointing to elevated exposure, elaborating on drivers, size, duration above the 75th percentile, and economic significance.
  - The analysis could highlight risks related to authorities’ willingness and ability to implement reforms needed to strengthen CtR.
  - Risk-mitigating factors to discuss: Access (appropriateness of proposed access), phasing (alignment of disbursements and reforms), conditionality and program policies (prospects for achieving targets and reducing CtR ratios), and country-specific factors (magnitude of contingent liabilities, prospects for natural resource revenues, prior claims on foreign exchange such as earmarked revenues, escrow accounts, collateral).
  - CtR paragraph must include a bottom-line assessment of capacity to repay in the topic sentence; for a program request to move forward, CtR must be assessed to be at least “adequate.”
  - In cases of elevated but manageable CtR risks, the bottom-line assessment should be conditional on the balance of risks (e.g., “CtR is adequate but subject to significant downside risks.”)
  - If CtR is deemed weak, the request should not move forward unless the program includes clear measures that would restore CtR to at least adequate.
- Downside scenarios and realism checks:
  - Dashboard should be based on baseline macroeconomic scenario but could include downside scenarios where applicable (e.g., precautionary arrangements).
  - CtR write-up should discuss downside scenarios when included in program documents and consider policy responses that would mitigate adverse impacts on CtR.
  - Revisions to the macroeconomic framework during internal review require a revised CtR analysis and dashboard.
- Process and documentation:
  - Area departments should share underlying data for the CtR dashboard with FIN using a standardized Excel file before program documents are posted on eReview.
  - FIN requires at least one business day to produce the CtR dashboard and send it back to country teams.
  - Revised data should be shared during internal review when baseline/downside scenarios or What-If projections are revised.
  - The data underpinning control group samples will be updated annually by FIN.

### ES2: Reducing debt vulnerabilities in programs for countries at high risk of or in debt distress
- ES2 requires that for countries at high risk of, or in, overall debt distress, requests for new PRGT arrangements or augmentations include as a core program objective the concrete reduction of debt vulnerabilities over the course of the program and beyond.
  - This would typically involve reducing breaches of the thresholds for debt and debt service indicators in the LIC-Debt Sustainability Framework (DSF), but the approach should not be purely mechanical.
  - The assessment of reduced debt vulnerabilities should be holistic and take account of country-specific factors.
- Relationship to PRGT exceptional access policy:
  - ES2 is less stringent than PRGT exceptional access (PRGT-EA and PS-HCC), which require public debt to be assessed sustainable in the medium term with high probability and, for countries at high risk of or in debt distress, improvement to at least moderate within 36 months or arrangement period via policies and financing (which may include debt restructuring).
  - ES2 does not require medium-term sustainability with high probability; the program is expected to deliver a reduction in debt vulnerabilities but not necessarily an improvement in debt distress rating to moderate within the program period.
- Cases where debt is unsustainable ex ante:
  - If debt is assessed unsustainable and program includes a debt restructuring to restore sustainability, ES2 is automatically satisfied.
  - The Fund is precluded from providing financial assistance unless the member takes steps to restore debt sustainability in the medium term; approval of Fund financing in such cases would be predicated on the member seeking a debt treatment consistent with restoring sustainability.
- Reduction in debt vulnerabilities under ES2 — focus and indicators:
  - ES2 write-up should focus on evolution of LIC-DSA debt vulnerability indicators that breach thresholds under the baseline during the program period and beyond.
  - LIC-DSA uses four external debt burden indicators: PV of PPG external debt relative to GDP and to exports (solvency risks); and ratio of external PPG debt service relative to exports and to revenues (liquidity risks). There is also an overall public debt burden indicator: PV of total PPG debt to GDP.
  - The model-based signal for risk of PPG debt distress compares each indicator’s projected evolution under baseline and shock scenarios relative to its statistically determined threshold.
  - Thresholds vary depending on assessed debt-carrying capacity (low, medium, or high), determined via a composite indicator using country-specific information.
  - High risk of debt distress is signaled when one or more indicators breach the threshold in the baseline.
- Implementation expectations and judgment:
  - Breaches under the baseline would typically need to be reduced to satisfy ES2, but it may not be possible or appropriate to reduce all breaches continuously given variable nature.
  - The composite picture should show a clear overall improvement; cases where some breaches widen temporarily should be explained and justified.
  - Strong presumption that debt/GDP and debt/exports would decline over the program, supported by fiscal consolidation, debt limits, and expected growth; exceptional cases may see initial widening due to front-loaded access or shocks.
  - Debt service trajectories are often fixed in near term reflecting past borrowing; where debt service rises over the program, reducing debt service/exports in near term may be infeasible; programs would normally be expected to include policies to mobilize higher revenues when debt service/revenues breaches thresholds.
  - Judgment must supplement mechanical signals where appropriate (e.g., long-term risks from climate change, unresolved arrears, pending debt operations, fragility/conflict, limited financing).
  - Some countries have been assessed as high risk of debt distress despite not breaching LIC-DSF indicators under the baseline in the near to medium term (examples listed in source).
- Operational note:
  - If program includes a debt restructuring to restore sustainability, ES2 is automatically satisfied; operationally, ES2 write-up can be short and refer to the DSA explaining how restructuring restores sustainability.

*PRGT—GN ON NEW ENHANCED SAFEGUARDS FOR DEBT SUSTAINABILITY AND CAPACITY TO REPAY — excerpt*

### Annex I. Sample Write-up for the Enhanced Safeguards for

### Annex I. Sample Write-up for the Enhanced Safeguards for Country X

### ES1A — Debt Structure and Projections
- Key findings on composition and evolution of debt:
  - At program initiation, the share of de facto senior debt plus other multilateral and collateralized debt in total external debt is below 50 percent and is projected to rise to 50 percent over the medium term under the baseline projection.
  - Debt held by institutions afforded preferred creditor status—the IMF, World Bank, and other major development banks—accounts for 34 percent of external debt at program initiation; adding debt held by other multilaterals and collateralized debt brings the total to 44 percent.
  - The combined share of such debt is projected to rise to 50 percent of external debt by 2024.
  - Total multilateral plus collateralized debt as a share of GDP is projected to decline from 32 to 22 percent of GDP under the program.

- Selected actuals and projections (levels as reported):
  - Total debt: 11,477; 11,061; 10,650; 10,022 (for the four consecutive years shown).
  - External debt: 10,099; 9,678; 9,267; 8,638.
  - Multilateral creditors: 4,010; 3,881; 3,750; 3,615.
    - IMF and WB: 2,168; 2,080; 1,990; 1,896.
    - IMF: 992; 952; 911; 868.
    - ADB/AfDB/IADB: 1,327; 1,307; 1,288; 1,270.
    - Other Multilaterals: 514; 494; 472; 450.
  - Bilateral creditors: 3,801; 3,518; 3,248; 2,990.
    - Paris Club: 2,136; 2,098; 2,065; 2,031.
    - Non-Paris Club: 1,666; 1,420; 1,183; 959.
  - Private creditors: 2,288; 2,279; 2,269; 2,034.
    - Bonds: 1,373; 1,367; 1,361; 1,220.
    - Loans: 915; 912; 908; 814.
  - Collateralized debt: 547; 567; 587; 609.
    - Related: 438; 453; 470; 487.
    - Unrelated: 113; 113; 117; 122.
  - Domestic debt: 1,378; 1,383; 1,383; 1,383.
  - Nominal GDP: 14,129; 15,933; 16,859; 19,456.

- Key ratios (percent measures preserved as reported):
  - Multilateral debt as percent of external debt: 40; 40; 40; 42.
  - Multilateral debt as percent of GDP: 28; 24; 22; 19.
  - IMF and WB as percent of external debt: 21; 21; 21; 22.
  - IMF and WB as percent of GDP: 15; 13; 12; 10.
  - ADB/AfDB/IADB as percent of external debt: 13; 14; 14; 15.
  - Collateralized debt as percent of external debt: 5; 6; 6; 7.
  - Collateralized debt as percent of GDP: 4; 4; 3; 3.

- Implication for ES1A:
  - Ratios below the mean and median for PRGT programs indicate a significant buffer of restructurable debt, permitting a briefer ES1A discussion if senior/hard-to-restructure debt remains below half of total external debt.

### ES1B — Capacity to Repay (CtR) and Risks
- Baseline CtR assessment:
  - Country X’s capacity to repay the Fund is adequate under the baseline scenario.
  - Under the baseline, the stock of debt to the Fund as a share of GDP remains at elevated levels based on existing and prospective drawings, peaking in T+3 at almost 5 percent of GDP.
  - Debt to the Fund as a share of exports and debt service as a share of revenues and exports are not elevated, with indicators of debt service to the Fund close to or below the median for the comparator group.

- Downside risks and stress scenarios:
  - Country X’s capacity to repay the Fund is subject to significant downside risks including failure of large energy projects, natural disasters, deterioration in the security situation, and materialization of fiscal risks that could reduce the government’s debt service capacity.
  - Under a downside scenario that assumes significant delays in energy projects, most Fund credit indicators exceed the 75th percentile of past PRGT arrangements.

- Mitigating factors highlighted:
  - Authorities’ strong track record of servicing their debt obligations to the Fund.
  - Fiscal policy measures envisaged in the program.
  - Measures to strengthen governance.
  - Smoothed phasing of Fund disbursements.
  - Country X is not exposed to large contingent liability risks under the energy contracts.
  - Continued implementation of structural reforms to support economic diversification would help manage risks.

- Dashboard guidance (metrics to include in ES1B):
  - Eight indicators recommended: Fund credit outstanding as a ratio of GDP, GIR, and PPG external debt; debt service to the Fund as a ratio of fiscal revenue (excl. grants), exports of goods and services, and PPG external debt service; and two charts highlighting the highest peak credit indicators for the above metrics relative to PRGT countries with top Fund credit exposures.
  - Baseline comparator group: all PRGT financing programs approved between 2010 and 2020 (default).

### ES2 — Debt Vulnerabilities and Program Effects
- Debt distress classification and context:
  - Country X is assessed to be in debt distress, due to pre-HIPC arrears and official arrears to a Paris Club creditor that are being addressed, with the two sides having reached an agreement on the amounts and a repayment plan.
  - Absent these arrears, Country X would still be at high risk of debt distress, with all four external debt indicators and the indicator on overall debt above the respective DSA thresholds in the baseline.

- Expected evolution of debt vulnerabilities under the program:
  - Debt vulnerabilities will be reduced under the program, indicated by the downward path of all five debt burden indicators over the course of the program.
  - The baseline external and overall debt-to-GDP indicators remain above the DSA thresholds until the late 2020s, reflecting financing needs arising from the pandemic and ongoing large LNG investments.
  - External debt service indicators (relative to exports and revenues) are expected to bottom out temporarily in the medium term at the DSA thresholds but resume their downward trajectory as exports and revenues from the large LNG investments are realized.

- Program measures supporting reduction in vulnerabilities:
  - Fiscal adjustments (revenue and wage bill measures).
  - Limits on non-concessional debt.
  - Prospective economic benefits from ongoing large investment in liquified natural gas (LNG) projects.
  - Focus on enhanced natural resource revenue management.
  - Structural reforms to support economic diversification and governance-strengthening measures.

### Operational and Procedural Points (selected)
- When ES are required:
  - Program/augmentation requests for countries at high risk of or in debt distress require ES1A, ES1B, and ES2, irrespective of access levels.
  - Requests for access above 100 percent of quota annual or 300 percent cumulative require ES1A and ES1B; ES2 is not required if the country is at low or moderate risk of debt distress.
  - ES are required only for requests for new financing arrangements or for augmentation of access (not for program reviews).
  - For requests entailing exceptional PRGT access or high combined access, ES1A and ES1B are required; ES2 is not required in that circumstance.
  - If debt is unsustainable and the program includes a debt restructuring, ES1A and ES1B are required; ES1A should present only current composition data (not projected evolution), and ES2 can be short and refer to the DSA.

- Dashboard preparation and inputs:
  - The CtR dashboard should be based on the baseline scenario underpinning the program request or augmentation; downside scenarios may be included where applicable.
  - FIN staff will prepare the charts based on data provided by country teams before the policy note or staff report is finalized.

*Source: Annex I. Sample Write-up for the Enhanced Safeguards for Country X (pp. 19–23).*

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_Source: https://www.imf.org/-/media/files/publications/pp/2022/english/ppea2022028.pdf_