## MODIFICATION TO THE TRANSPARENCY POLICY (ppea2022035)

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---

### Executive summary
- The new Debt Sustainability Framework for Market Access Countries (MAC SRDSF) produces certain outputs that would be shared with the Board but that staff proposes be deleted from Country Documents before publication.
- A targeted modification to the Fund’s Transparency Policy (TP) is proposed to allow automatic deletions across market access Country Documents rather than on a case-by-case basis.
- The MAC SRDSF output items to be deleted before publication are:
  - the near-term risk assessment;
  - when debt is assessed to be sustainable, the qualification “with high probability” or “but not with high probability”, unless such qualification is required for use of Fund resources; and
  - the mechanical signal on debt sustainability.
- Date of staff completion: June 24, 2022.

### Background and risks motivating the modification
- Two principal risks from public disclosure of certain MAC SRDSF elements:
  - Triggering negative market reactions because deleted elements are part of the standard SRDSA output that markets expect to see; deletion itself could send a negative signal.
  - Disclosing confidential methodological detail that could permit markets to infer sensitive aspects of the Fund’s DSA methodology if many reports contained the information.
- Limitations of existing TP deletions:
  - Case-by-case deletions could themselves send negative signals when items are omitted inconsistently.
  - Repeated disclosure of methodological components across many reports could enable reverse-engineering of the methodology.

### Proposed modification to the Transparency Policy (scope and rationale)
- Targeted amendment to permit automatic removal, prior to publication, of specific MAC SRDSF outputs that would still be available to the Executive Board.
- Phased rollout schedule:
  - A phased rollout of the new framework is expected to start by June, with a subset of market access countries applying a substantial part of the framework at that point.
  - Expectation to finish the rollout and make full framework application compulsory for all MACs by November 2022.
- The Board previously noted that certain outputs should be made available to the Board but not the public for at least a 12-month period, after which full disclosure would be reconsidered.

### Specific SRDSF outputs proposed for automatic deletion
- Items to be removed from published Country Documents (if included in the DSA presented to the Board):
  - results of the near-term sovereign risk assessment;
  - the mechanical signal for debt sustainability;
  - any mention of whether debt is sustainable “with high probability” or sustainable “but not with high probability”, for Article IV consultations or for Fund arrangements where this qualification is not required for use of Fund resources; and
  - the near-term risk analysis table, chart, and commentary.
- Application notes:
  - The near-term sovereign risk assessment applies only in surveillance-only cases or Fund arrangements treated as precautionary and in non-financial instruments (it is not applicable in drawing financing arrangements). Where applicable, it would be included in staff reports to the Board but deleted prior to publication.
  - The probability qualifier (“with high probability” / “but not with high probability”) would not be deleted in Fund arrangements where such information is required for use of Fund resources (e.g., Exceptional Access, Flexible Credit Line (FCL), Precautionary and Liquidity Line (PLL), Short-term Liquidity Line (SLL) where required).
  - The mechanical bottom-line debt sustainability assessment (unsustainable; sustainable but not with high probability; sustainable with high probability) would be included in staff reports to the Board but deleted in all cases prior to publication.
- Any references to deleted items within summaries or commentary (e.g., in item 1 or item 9) must also be deleted.

### Affected items in the MAC SRDSF output
- Up to 9 items may be contained in the full MAC SRDSF output; the TP changes would affect 3 of these items:
  - Item 1: overall summary — contains material covered by each proposed TP change (near-term assessment, probability of sustainable debt, mechanical signal).
  - Item 6: near-term sovereign risk assessment — only applicable in surveillance-only cases or arrangements treated as precautionary; subject to automatic deletion prior to publication where applicable.
  - Item 9: debt sustainability under a maximum adjustment effort — applies solely to surveillance-only cases and is optional; where presented, the mechanical debt sustainability assessment and the probability qualifier would be deleted before publication.
- The six SRDSA items not affected by the proposed TP changes include:
  - debt coverage and disclosures;
  - public debt structure indicators;
  - baseline scenario;
  - realism tools;
  - medium-term risk analysis;
  - long-term risk analysis.

### Implementation and illustrative application
- The Annex provides implementation examples using a fictitious country (“Ruritania”) to show the before-and-after application of deletions for items 1, 6, and 9.
- The Annex summarizes applicability of deletions across different engagement contexts:
  - surveillance-only;
  - normal-access arrangement treated as precautionary;
  - drawing normal-access arrangement;
  - exceptional access and precautionary FCL/PLL/SLL;
  - drawing exceptional-access/FCL/PLL/SLL.
- Surveillance-only example highlights:
  - Staff-performed near-term assessment and optional sustainability assessment result in items 1, 6, and 9 being subject to deletions.
  - Deletions illustrated include removal of entire near-term sovereign risk assessment row, replacement of mechanical signal with “...”, removal of probability qualifiers, and deletion of item 6 figure/table entirely.

### Proposed Decision text (summary)
- Proposed amendment to Decision No. 15420-(13/61) (adopted June 24, 2013, as amended):
  - Add paragraph 27A specifying that for Country Documents including DSAs under the MAC SRDSF, the following items shall be removed before publication if included in the DSA issued to the Executive Board:
    - (a) the results of the near-term sovereign risk assessment,
    - (b) the mechanical signal for debt sustainability,
    - (c) any mention of whether debt is sustainable “with high probability” or sustainable “but not with high probability”, for Article IV consultations or for Fund arrangements where this qualification is not required for use of Fund resources under such arrangements, and
    - (d) the near-term risk analysis table, chart, and commentary.
  - The Fund will review the amendment no later than one year from its adoption.

### Key procedural timelines and review
- Staff completion date: June 24, 2022.
- Phased rollout start: by June.
- Full rollout expected by November 2022.
- The amendment to the Transparency Policy is expected to be reviewed no later than one year from the date of adoption.

### Section 2 — Application across Fund engagement contexts (summarized)
- B. Normal-Access Fund Arrangements Treated As Precautionary (Paragraph 7)
  - Staff performs the near-term sovereign risk assessment in the version to the Board, but it would not be shown to the public in items 1 (Figures AI.6 and AI.7) and 6 (Figure AI.8).
  - The sustainability assessment is required for Fund-supported programs (regardless of whether they are treated as precautionary or not).
  - Prior to publication, the mechanical signal on debt sustainability would need to be deleted.
  - As the program entails normal access, the probability of sustainable debt should also be taken out of the published version.
  - Any commentary on item 1 that refers to either the near-term assessment, mechanical signal on debt sustainability, or probability of sustainable debt should be deleted prior to publication.
  - Item 9 does not apply in the context of IMF arrangements.

- C. Normal-Access Drawing (Non-Precautionary) Fund Arrangement (Paragraph 8)
  - The near-term sovereign risk assessment is not applicable in drawing (non-precautionary) Fund arrangements; therefore, no results on such analysis are prepared or included in items 1 or 6 of either the Board or the public versions of the SRDSA.
  - Given that this is a program case, both the mechanical signal on debt sustainability and the probability of sustainable debt would be shown in the Board version of item 1 (Figure AI.9), but redacted from the published version (Figure AI.10).
  - Any commentary in item 1 that refers to this item would also be deleted before publication.
  - Item 9 does not apply in the context of IMF arrangements and is not included in the SRDSA.

- D. Exceptional Access Fund Arrangements Treated As Precautionary and FCL, PLL, and SLL Arrangements Treated As Precautionary (Paragraph 9)
  - In arrangements treated as precautionary, the near-term assessment is applicable and is prepared for the Board version of the SRDSA.
  - The results are shown in items 1 and 6 of the Board version but are excised for the published version.
  - Any commentary related to the near-term assessment in item 1 is also to be deleted.
  - Given the program-engagement, a sustainability assessment is required, and the mechanical signal on debt sustainability and the probability of sustainable debt are shown on item 1.
  - Unlike normal access arrangements, the probability of sustainable debt is not deleted for the published version as this item is needed to demonstrate the application of the Exceptional Access criteria (EA-2).
  - The mechanical signal on debt sustainability is only included on the Board version of item 1 and dropped from the published version.
  - Item 9 is neither applicable nor included in SRDSA under any program engagement.

- E. Drawing (Non-Precautionary) Exceptional Access Fund Arrangements, and Drawing (Non-Precautionary) FCL, PLL, and SLL Arrangements (Paragraph 10)
  - The near-term sovereign risk assessment is not applicable and therefore no results on such analysis are prepared for inclusion of either the Board or the public versions of the SRDSA in items 1 or 6.
  - Item 9 does not apply in the context of IMF arrangements.
  - To demonstrate the application of the Exceptional Access Criteria (EA-2), the probability of sustainable debt must be included in both the Board and published versions of the SRDSA.
  - The mechanical signal is deleted from the published version.

*International Monetary Fund — MODIFICATION TO THE TRANSPARENCY POLICY (Section 1), staff report completed June 24, 2022; ppea2022035 - Section 2.*

### Section 1

### MODIFICATION TO THE TRANSPARENCY POLICY

### Executive summary
- The new Debt Sustainability Framework for Market Access Countries (MAC SRDSF) produces certain outputs that would be shared with the Board but that staff proposes be deleted from Country Documents before publication.
- A targeted modification to the Fund’s Transparency Policy (TP) is proposed to allow automatic deletions across market access Country Documents rather than on a case-by-case basis.
- The MAC SRDSF output items to be deleted before publication are:
  - the near-term risk assessment;
  - when debt is assessed to be sustainable, the qualification “with high probability” or “but not with high probability”, unless such qualification is required for use of Fund resources; and
  - the mechanical signal on debt sustainability.
- Date of staff completion: June 24, 2022.

### Background and risks motivating the modification
- Two principal risks from public disclosure of certain MAC SRDSF elements:
  - Triggering negative market reactions because deleted elements are part of the standard SRDSA output that markets expect to see; deletion itself could send a negative signal.
  - Disclosing confidential methodological detail that could permit markets to infer sensitive aspects of the Fund’s DSA methodology if many reports contained the information.
- Existing TP deletions are available on a case-by-case basis but may be insufficient because:
  - Case-by-case deletions could themselves send negative signals when items are omitted inconsistently.
  - Repeated disclosure of methodological components across many reports could enable reverse-engineering of the methodology.

### Proposed modification to the Transparency Policy (scope and rationale)
- The paper proposes a targeted amendment to the TP to permit automatic removal, prior to publication, of specific MAC SRDSF outputs that would still be available to the Executive Board.
- Phased rollout schedule noted:
  - A phased rollout of the new framework is expected to start by June, with a subset of market access countries applying a substantial part of the framework at that point.
  - Expectation to finish the rollout and make full framework application compulsory for all MACs by November 2022.
- The Board previously noted that certain outputs should be made available to the Board but not the public for at least a 12-month period, after which full disclosure would be reconsidered.

### Specific SRDSF outputs proposed for automatic deletion
- The items subject to deletion in all published Country Documents (if included in the DSA presented to the Board) are:
  - results of the near-term sovereign risk assessment;
  - the mechanical signal for debt sustainability;
  - any mention of whether debt is sustainable “with high probability” or sustainable “but not with high probability”, for Article IV consultations or for Fund arrangements where this qualification is not required for use of Fund resources; and
  - the near-term risk analysis table, chart, and commentary.
- Application notes:
  - The near-term sovereign risk assessment applies only in surveillance-only cases or Fund arrangements treated as precautionary and in non-financial instruments (it is not applicable in drawing financing arrangements). Where applicable, it would be included in staff reports to the Board but deleted prior to publication.
  - The probability qualifier (“with high probability” / “but not with high probability”) would not be deleted in Fund arrangements where such information is required for use of Fund resources (e.g., Exceptional Access, Flexible Credit Line (FCL), Precautionary and Liquidity Line (PLL), Short-term Liquidity Line (SLL) where required).
  - The mechanical bottom-line debt sustainability assessment (unsustainable; sustainable but not with high probability; sustainable with high probability) would be included in staff reports to the Board but deleted in all cases prior to publication.

### Affected items in the MAC SRDSF output
- Up to 9 items may be contained in the full MAC SRDSF output; the TP changes would affect 3 of these items:
  - Item 1: overall summary — contains material covered by each proposed TP change (near-term assessment, probability of sustainable debt, mechanical signal).
  - Item 6: near-term sovereign risk assessment — only applicable in surveillance-only cases or arrangements treated as precautionary; subject to automatic deletion prior to publication where applicable.
  - Item 9: debt sustainability under a maximum adjustment effort — applies solely to surveillance-only cases and is optional; where presented, the mechanical debt sustainability assessment and the probability qualifier would be deleted before publication.
- The six SRDSA items not affected by the proposed TP changes include:
  - debt coverage and disclosures;
  - public debt structure indicators;
  - baseline scenario;
  - realism tools;
  - medium-term risk analysis;
  - long-term risk analysis.
- Any references to deleted items within summaries or commentary (e.g., in item 1 or item 9) must also be deleted.

### Implementation and illustrative application
- The Annex provides implementation examples using a fictitious country (“Ruritania”) to show the before-and-after application of deletions for items 1, 6, and 9.
- The Annex summarizes applicability of deletions across different engagement contexts (surveillance-only; normal-access arrangement treated as precautionary; drawing normal-access arrangement; exceptional access and precautionary FCL/PLL/SLL; drawing exceptional-access/FCL/PLL/SLL).
- In surveillance-only example:
  - Staff-performed near-term assessment and optional sustainability assessment result in items 1, 6, and 9 being subject to deletions.
  - Deletions illustrated include removal of entire near-term sovereign risk assessment row, replacement of mechanical signal with “...”, removal of probability qualifiers, and deletion of item 6 figure/table entirely.

### Proposed Decision text (summary)
- Amendment to Decision No. 15420-(13/61) (adopted June 24, 2013, as amended):
  - Add paragraph 27A to read that for Country Documents including DSAs under the MAC SRDSF, the following items shall be removed before publication if included in the DSA issued to the Executive Board:
    - (a) the results of the near-term sovereign risk assessment,
    - (b) the mechanical signal for debt sustainability,
    - (c) any mention of whether debt is sustainable “with high probability” or sustainable “but not with high probability”, for Article IV consultations or for Fund arrangements where this qualification is not required for use of Fund resources under such arrangements, and
    - (d) the near-term risk analysis table, chart, and commentary.
  - The Fund will review the amendment no later than one year from its adoption.

### Key procedural timelines and review
- Staff completion date: June 24, 2022.
- Phased rollout start: by June (year not restated beyond context).
- Full rollout expected by November 2022.
- The amendment to the Transparency Policy is expected to be reviewed no later than one year from the date of adoption.

*International Monetary Fund — MODIFICATION TO THE TRANSPARENCY POLICY (Section 1), staff report completed June 24, 2022.*

### Section 2

### ppea2022035 - Section 2

### B. Normal-Access Fund Arrangements Treated As Precautionary
- Paragraph 7:
  - Staff performs the near-term sovereign risk assessment in the version to the Board, but it would not be shown to the public in items 1 (Figures AI.6 and AI.7) and 6 (Figure AI.8).
  - The sustainability assessment is required for Fund-supported programs (regardless of whether they are treated as precautionary or not).
  - Prior to publication, the mechanical signal on debt sustainability would need to be deleted.
  - As the program entails normal access, the probability of sustainable debt should also be taken out of the published version.
  - Any commentary on item 1 that refers to either the near-term assessment, mechanical signal on debt sustainability, or probability of sustainable debt should be deleted prior to publication.
  - Item 9 does not apply in the context of IMF arrangements.

- Figures referenced:
  - Figure AI.6. Item 1 Prior to Deletions (Issued to IMF Executive Board)
  - Figure AI.7. Item 1 After Deletions (Published Version)
  - Figure AI.8. Item 6 Before and After Deletions

### C. Normal-Access Drawing (Non-Precautionary) Fund Arrangement
- Paragraph 8:
  - The near-term sovereign risk assessment is not applicable in drawing (non-precautionary) Fund arrangements; therefore, no results on such analysis are prepared or included in items 1 or 6 of either the Board or the public versions of the SRDSA.
  - Given that this is a program case, both the mechanical signal on debt sustainability and the probability of sustainable debt would be shown in the Board version of item 1 (Figure AI.9), but redacted from the published version (Figure AI.10).
  - Any commentary in item 1 that refers to this item would also be deleted before publication.
  - Item 9 does not apply in the context of IMF arrangements and is not included in the SRDSA.

- Figures referenced:
  - Figure AI.9. Item 1 Prior to Deletions (Issued to Executive Board)
  - Figure AI.10. Item 1 Post Deletion (Published Version)

### D. Exceptional Access Fund Arrangements Treated As Precautionary and FCL, PLL, and SLL Arrangements Treated As Precautionary
- Paragraph 9:
  - In arrangements treated as precautionary, the near-term assessment is applicable and is prepared for the Board version of the SRDSA.
  - The results are shown in items 1 and 6 of the Board version but are excised for the published version.
  - Any commentary related to the near-term assessment in item 1 is also to be deleted.
  - Given the program-engagement, a sustainability assessment is required, and the mechanical signal on debt sustainability and the probability of sustainable debt are shown on item 1.
  - Unlike normal access arrangements, the probability of sustainable debt is not deleted for the published version as this item is needed to demonstrate the application of the Exceptional Access criteria (EA-2).
  - The mechanical signal on debt sustainability is only included on the Board version of item 1 and dropped from the published version.
  - Figure AI.11 shows the pre-deletion version of item 1, Figure AI.12 shows the post-deletion version of item 1, and Figure AI.13 shows the application of the deletions policy to item 6.
  - Item 9 is neither applicable nor included in SRDSA under any program engagement.

- Figures referenced:
  - Figure AI.10. Item 1 Prior to Deletions (Issued to Executive Board)
  - Figure AI.12. Item 1 After Deletions (Published Version)
  - Figure AI.13. Item 6 Before and After Deletions (Before Deletions (Issued to Executive Board); After Deletions (Published Version) — Entire figure deleted)

### E. Drawing (Non-Precautionary) Exceptional Access Fund Arrangements, and Drawing (Non-Precautionary) FCL, PLL, and SLL Arrangements
- Paragraph 10:
  - The near-term sovereign risk assessment is not applicable and therefore no results on such analysis are prepared for inclusion of either the Board or the public versions of the SRDSA in items 1 or 6.
  - Item 9 does not apply in the context of IMF arrangements.
  - To demonstrate the application of the Exceptional Access Criteria (EA-2), the probability of sustainable debt must be included in both the Board and published versions of the SRDSA.
  - Figure AI.14 shows the version of item 1 issued to the Board and Figure AI.15 shows the same item after the deletion of the mechanical signal.

- Figures referenced:
  - Figure AI.14. Item 1 Prior to Deletions (Issued to Executive Board)
  - Figure AI.15. Item 1 After Deletions (Published Version)

*Source: ppea2022035 - Section 2*

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_Source: https://www.imf.org/-/media/files/publications/pp/2022/english/ppea2022035.pdf_