## _110513 ## Source details **Canonical URL:** [_110513](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2013/_110513.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2013/_110513.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2013/_110513.pdf.json) --- ### Executive summary: purpose, scope, and main changes - Purpose of the DSF - Standardized framework for conducting debt sustainability analysis in low-income countries (LICs). - Main objectives: guide borrowing decisions of LICs; provide guidance for creditors’ lending and grant allocation decisions; inform IMF and World Bank analysis and policy advice. - Target audience: IMF and World Bank staff, country authorities; serves as step-by-step guide and comprehensive reference manual. - History and 2012 review - DSF introduced in April 2005; reviewed in 2006, 2009, and 2012. - This guidance note incorporates modifications and innovations approved at the time of the 2012 review. - Main changes from previous guidance - Revised thresholds: debt service to revenue, PV of debt to exports+remittances, debt service to exports+remittances revised. - New benchmarks for total public debt (PV of public debt to GDP) to guide deeper analysis of public domestic debt. - Revised guidance on remittances and remittance-adjusted thresholds. - New “probability approach” for borderline cases using country-specific information. - New assessment of overall risk of debt distress to flag vulnerabilities related to public domestic debt or private external debt. ### Analytical underpinnings and structure - Solvency and liquidity - Solvency: PV of future primary balances must be ≥ public debt stock; for the country as a whole PV of future non-interest current account balances must be ≥ external debt. - If debt-to-GDP ratio is on a non-explosive path (stable or declining in the long run), solvency condition is met. - Liquidity risk determined by currency composition, maturity structure, interest rate structure, and availability of liquid assets. - Two DSAs - External DSA: covers total external debt (public and private); produces external risk rating based solely on PPG external debt outlook (low, moderate, high, in debt distress). - Public DSA: covers total public sector debt (external and domestic); uses benchmarks to trigger deeper domestic-debt analysis. - Debt burden indicators - Eight indicators total: five in external DSA, three in public DSA. - Indicators are either solvency (PV ratios) or liquidity (debt service ratios). - When remittances are incorporated, three of the five external indicators are modified. ### Presentation and tools - Excel-based DSA template produces 20-year projections and standardized stress tests; template displays baseline, historical scenario, most extreme stress test, and relevant thresholds/benchmarks. --- ### Present value (PV) treatment, grant element, and discount rate - PV definition and concessionality - PV of debt = sum of future debt service (principal and interest), discounted to present using discount rate (β). - Grant element (GE) = (nominal − PV) / nominal, expressed as a percentage of nominal value. - DSF assumes PV of public domestic debt = nominal value (discount rate = contractual interest rate for domestic liabilities). - Discount rate - DSF uses a single discount rate of 5 percent. - Single rate applied to PV of external debt and grant element calculations. - Rate to remain unchanged until completion of next DSF review expected in 2015. --- ### Thresholds for PPG external debt and public debt benchmarks - PPG external debt thresholds (by CPIA quality) - Weak: - PV of PPG external debt in percent of GDP: 30 - PPG external debt service in percent of Exports: 100 - PPG external debt service in percent of Revenue: 200 - (Other indicators shown): Exports 15, Revenue 18 - Medium: - PV of PPG external debt in percent of GDP: 40 - PPG external debt service in percent of Exports: 150 - PPG external debt service in percent of Revenue: 250 - (Other indicators shown): Exports 20, Revenue 20 - Strong: - PV of PPG external debt in percent of GDP: 50 - PPG external debt service in percent of Exports: 200 - PPG external debt service in percent of Revenue: 300 - (Other indicators shown): Exports 25, Revenue 22 - Public debt benchmarks (PV of total public debt in percent of GDP) - Weak: 38 - Medium: 56 - Strong: 74 - Role distinction - Thresholds: fundamental for external risk rating determination. - Benchmarks: trigger deeper analysis of public domestic debt vulnerabilities when total public debt moves rapidly toward or exceeds benchmarks. --- ### CPIA and policy performance categories - CPIA scoring and DSF categories - CPIA ranges 1 (lowest) to 6 (highest) across 16 indicators. - DSF categories: - Weak: CPIA score ≤ 3.25 - Medium: CPIA score > 3.25 and < 3.75 - Strong: CPIA score ≥ 3.75 - Three-year moving average CPIA used to determine category. - Immediate category change if updated three-year moving average breaches a boundary by > 0.05; if breach ≤ 0.05 then change only if sustained for two consecutive years. --- ### Macroeconomic framework and data inputs - Role and requirements - Projections must be realistic, internally consistent, and consistent with authorities’ policies. - Staff should engage authorities on new public borrowing projections, especially first 1–2 years. - Template requires assumptions about terms of marginal public borrowing used in stress tests. - Variables and currency treatment (historical 10 years, projections 20 years) - Balance of payments (U.S. dollars): current account, exports, imports, current transfers, gross workers’ remittances, net FDI, exceptional financing, gross reserves (flow). - Public sector (national currency): revenue (including grants), grants, privatization receipts, expenditure, assets, recognition of implicit/contingent liabilities, other debt-creating/reducing flows, debt relief. - Debt stocks and interest/amortization: PPG external debt (short-term historical+projections; medium/long-term historical only), private external debt, public domestic debt, interest and amortization due entries as specified in Table 4. - Other: GDP current prices (U.S. dollars), GDP constant prices (national currency), U.S. GDP deflator, exchange rate end-period and average. --- ### Assessing realism of assumptions and investment-growth analysis - Key scrutiny areas - Financing mix and terms: realistic transition from concessional to nonconcessional borrowing; consistency with MTDS. - Large fiscal adjustments: need strong justification given constraints in LICs. - Large growth accelerations and FDI projections: require substantiation; beware of import-intensive FDI and profit repatriation. - Large deviations vs historical scenario: large favorable baseline vs historical may signal excessive optimism. - Past projection errors should be reviewed and explained. - Public investment and growth - DSF requires discussion of determinants of growth including public investment. - Empirical cautions: prolonged growth accelerations are rare; macro returns to public investment generally lower than project-level returns; quality of policies and institutions critical. - Use of analytical techniques: simple growth accounting is acceptable; more complex models recommended when scaling up investment. - Models availability: World Bank MAMS, World Bank Spatial Approach, IMF dynamic macroeconomic model for LICs (see Annex 2). --- ### Remittances: measurement and adjusted thresholds - Context and usage - World Bank estimate: remittances to LICs increased from $1.4 billion in 1990 to $32billion in 2011. - Remittances among top recipients ranged between 18 and 47 percent of GDP. - Remittances can be added to denominators of three external indicators: PV debt to GDP+remittances; PV debt to exports+remittances; debt service to exports+remittances. - Remittance-adjusted threshold adjustments - PV of debt to GDP thresholds: 10 percent lower when adjusted for remittances. - PV of debt to exports and debt service to exports thresholds: 20 percent lower when adjusted. - Remittance-adjusted thresholds (selected entries by CPIA) - Weak: - PV of PPG external debt in percent of GDP + remittances: 30 - PPG external debt in percent of Exports + remittances: 27 - PPG external debt service in percent of Exports + remittances: 80 - PPG external debt service in percent of Revenue: 200 - Medium: - PV of PPG external debt in percent of GDP + remittances: 40 - PPG external debt in percent of Exports + remittances: 36 - PPG external debt service in percent of Exports + remittances: 120 - PPG external debt service in percent of Revenue: 250 - Strong: - PV of PPG external debt in percent of GDP + remittances: 50 - PPG external debt in percent of Exports + remittances: 45 - PPG external debt service in percent of Exports + remittances: 160 - PPG external debt service in percent of Revenue: 300 - Operational guidance on incorporation - Remittances must be presented as the base case if remittances are large: both greater than 10 percent of GDP and greater than 20 percent of exports of goods and services (backward-looking, three-year average). - If remittances are large, staff may still present results without remittances as alternative. - If remittances are not large, staff may present remittance case as alternative and discuss reliability/significance. - Alternative cases may inform risk rating but require justification. --- ### Stress tests: baseline, standardized tests, and Box 4 mechanics - Baseline and stress-test framework - Baseline: most likely path, derived from macro framework; template projects 20-year paths. - Stress tests: gauge sensitivity; template applies standardized stress tests simultaneously. - Projection horizon: 20 years to capture long maturities and returns on investment. - Most extreme stress test: the test yielding highest debt on or before year ten. - Standardized stress tests: counts and types - Total standardized stress tests: 16 (external DSA: 2 alternative scenarios, 6 bound tests; public DSA: 3 alternative scenarios, 5 bound tests). - Alternative scenarios (permanent) and bound tests (temporary 1–2 years; bound tests calibrated to ≈ 25 percent probability of occurrence at 10-year horizon). - External DSA standardized tests (Table 6) - Alternative scenarios (permanent): - A1. Historical — real GDP growth, GDP deflator, non-interest current account, and net FDI set to their historical averages. - A2. External financing — external borrowing assumed less concessional by 200 basis points. - Bound tests (typical timing: second and third year unless noted): - B1. Real GDP growth — set to historical average minus one standard deviation. - B2. Exports — nominal export growth (USD) set to historical average minus one standard deviation. - B3. Deflator — domestic GDP deflator (USD) set to historical average minus one standard deviation. - B4. Other flows — current transfers-to-GDP and FDI-to-GDP set to historical average minus one standard deviation. - B5. Combination of B1–B4 — each variable set to historical average minus half a standard deviation. - B6. Depreciation — one-time 30 percent nominal depreciation in first year. - Public DSA standardized tests (Table 6) - Alternative scenarios (permanent): - A1. Historical — primary balance-to-GDP and real GDP growth set to historical averages. - A2. Primary balance — primary balance-to-GDP set to its value in first projection year. - A3. Lower real GDP growth — real GDP lowered by a fraction of its standard deviation. - Bound tests: - B1. Real GDP growth — historical average minus one standard deviation. - B2. Primary balance — primary balance-to-GDP historical average minus one standard deviation. - B3. Combination B1+B2 — both set to historical average minus half a standard deviation. - B4. Depreciation — one-time 30 percent nominal depreciation in first year. - B5. Other debt-creating flows — one-time increase amounting to 10 percent of GDP in second year. - Box 4 highlights: mechanism and caveats - Stress tests deterministic: shocks of specified magnitude assumed to occur. - A1 (historical) freezes four variables at 10-year historical averages; typically deteriorates debt indicators by lowering nominal GDP and revenue while increasing borrowing needs. - B1 bound test (public DSA): temporary growth shock reduces nominal GDP and revenue, increases primary deficit and gross financing requirement, raising debt. - Caveats: historical averages may be misleading after structural breaks; staff should present results and explain caveats; in rare consensus cases a stress test can be excluded. --- ### Customized scenarios and deeper domestic debt analysis - Purpose of customized scenarios - Capture idiosyncratic vulnerabilities not covered by standardized tests (high-investment/high-growth, contingent liabilities, narrow export bases, tail risks, Fund financing exclusion). - Should inform, but not mechanically replace, standardized-test-implied risk ratings; departures must be justified. - Domestic debt deeper analysis triggers and checklist - Trigger: total public debt to GDP moving rapidly toward or exceeding relevant benchmark in baseline. - Characteristics to assess (level, trends, maturity, currency composition, creditor base, fixed vs floating rates, contingent liabilities). - If domestic debt risks significant, reflect them in overall risk of debt distress. --- ### Risks related to private external debt and market-term public external debt - Private external debt risks - Competes for foreign exchange; may create contingent liabilities for government if private sector needs intervention; banking-sector external borrowing can generate recapitalization needs and sudden public debt spikes. - DSF covers total external debt but external risk rating focuses on PPG external debt; private external debt discussed separately and flagged if significant. - Market-term public external debt risks (advanced LICs) - Abrupt shifts in market sentiment can cause capital outflows, reserve pressure, liquidity and interest rate risks when bonds mature. - Assess adequacy of foreign exchange reserves and average time to maturity of domestic debt. --- ### External risk rating, probability approach, and borderline cases - External risk rating (based strictly on PPG external debt) - Low risk: all indicators below thresholds, including under stress tests. - Moderate risk: baseline below thresholds; stress tests cause one or more breaches. - High risk: baseline breaches one or more thresholds but country not currently facing payment difficulties. - In debt distress: current debt and debt service ratios in significant or sustained breach; arrears or restructuring negotiations generally indicate debt distress. - Probability approach (new feature for borderline cases) - Focuses on probability of debt distress over time (expressed as a percent) associated with each debt indicator, compared to a probability threshold in baseline and stress tests. - Uses country-specific CPIA (three-year moving average) and average real GDP growth over 25 years (5 historical + 20 projected). - Traditional approach uses discrete CPIA values (3.25, 3.50, 3.75) and average LIC growth; probability approach provides complementary, country-specific information. - Borderline cases: definition and 10-percent bands - Borderline case: largest breach or near breach falls within a 10-percent band around threshold; template considers baseline, historical scenario, and most extreme stress test. - Example bands (without remittances): - PV of PPG external debt in percent of GDP — Weak: 28.5−31.5; Medium: 38−42; Strong: 47.5−52.5. - PPG external debt service in percent of Exports — Weak: 95−105; Medium: 142.5−157.5; Strong: 190−210. - PPG external debt service in percent of Revenue — Weak: 190−210; Medium: 237.5−262.5; Strong: 285−315. - With remittances analogous 10-percent bands provided (e.g., PV of PPG external debt in percent of GDP + remittances — Weak: 25.65−28.35; Medium: 34.2−37.8; Strong: 42.75−47.25). - Types of borderline cases - Borderline low/moderate, moderate/low, moderate/high, high/moderate — determined by which scenarios produce (near-)breaches. - Probability approach results used alongside traditional approach and country-specific factors to determine final rating. --- ### Overall risk of debt distress and reporting - Overall risk complements external risk rating by flagging vulnerabilities related to public domestic debt and private external debt. - Reporting guidance - If no significant vulnerabilities related to public domestic debt or private external debt, no separate overall assessment needed. - If significant vulnerabilities exist, chapeau paragraph must reflect combination of external rating and additional vulnerabilities with sample language provided for each external rating category. - Presumption: for low or moderate external risk ratings, if public debt to GDP moves rapidly toward or exceeds benchmark in baseline, presume significant public domestic debt vulnerabilities unless justified otherwise. - Operational implication - External risk rating informs creditors (e.g., IDA); overall risk assessment informs macroeconomic and structural policy dialogue and design of debt limits in Fund-supported programs. --- ### Producing a DSA: procedural steps and timing - Steps to produce a DSA - Step 1: Construct realistic, internally consistent macroeconomic framework; consider investment-growth models if scaling up investment. - Step 2: Enter data (historical 10 years, projections 20 years) into DSA template; include new PPG external borrowing and borrowing terms; design customized scenarios where appropriate. - Step 3: Assess risks within external and public DSAs; use remittance-adjusted thresholds when remittances are large; apply probability approach in borderline cases; analyze private external debt and domestic debt vulnerabilities and reflect in overall risk if significant. - Step 4: Draft write-up (full DSA or light update). - When DSAs must be produced - At least once every calendar year in context of IMF Board or IDA Board document. - New DSA required for: IMF financing requests involving exceptional access; modifications to program-related performance criteria on debt limits with non-negligible borrowing increases; IDA NCBP non-concessional borrowing beyond levels assessed in most recent DSA. - All DSAs must be submitted to both IMF and IDA Executive Boards. --- ### DSA write-up structure (Annex 1) and annex highlights - Full DSA outline (header, chapeau paragraph, sections A–E) - Header includes: country, staff report, Debt Sustainability Analysis, external risk rating, augmented by significant risks? [yes/no]. - Chapeau must specify external risk rating and brief assessment of public debt dynamics; footnote should report three-year average CPIA score and category. - Sections cover background, underlying assumptions, external DSA, public DSA, conclusion; authorities’ views must be reflected. - Light update outline: condensed version following same header and conclusion structure. - Annex 2 (Investment-Growth Models) - Summarizes models: World Bank MAMS, World Bank Spatial Approach, IMF dynamic macroeconomic model for LICs; judgment and country knowledge needed to complement models. - Annex 3 (Treatment of Public Enterprises) - Public sector coverage: central government, regional/local governments, central bank, public enterprises (government controls via >50% voting shares). - Criteria to exclude SOE debt: enterprise borrows without public guarantee and poses limited fiscal risk; checklist on managerial independence, relations with government, audits, annual reports, financial sustainability. - Annex 4 (Treatment of SDR Allocations) - SDR allocations increase both cumulative allocations (liability) and holdings (asset); net interest on shortfalls becomes debt service obligation to IMF SDR Department. - Country’s SDR allocation should not be included in nominal gross external debt; DSA must estimate PV of future net interest payments when holdings fall below allocation and include PV in total PV of debt. - Template projects future SDR interest rate using WEO projections and current SDR weights; required inputs: current SDR allocation, total SDR holdings, expected drawdown of holdings. --- *Source: STAFF GUIDANCE NOTE ON THE DSF FOR LICs — extracted content unit _110513* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Purpose and scope of the DSF - The Debt Sustainability Framework (DSF) is a standardized framework for conducting debt sustainability analysis in low-income countries (LICs). - Main objectives: - Help guide the borrowing decisions of LICs. - Provide guidance for creditors’ lending and grant allocation decisions. - Inform IMF and World Bank analysis and policy advice. - The DSF was introduced in April 2005 and has been reviewed on three occasions: 2006, 2009, and 2012. - This guidance note incorporates modifications and innovations to the framework approved by the Executive Boards at the time of the 2012 review. - Target audience: - IMF and World Bank staff. - Country authorities, regardless of their level of experience with the framework. - Serves as both a step-by-step guide for beginners and a comprehensive reference manual for experienced users. ### Main changes from previous guidance (Box 1) - Revised thresholds: - Thresholds for debt service to revenue, the present value (PV) of debt to the sum of exports and remittances, and debt service to the sum of exports and remittances have been revised. - New benchmarks for total public debt: - Benchmarks for total public debt to GDP introduced to guide when to conduct deeper analysis of public domestic debt. - Revised guidance on remittances: - Updated guidance on how to incorporate remittances into DSAs. - New “probability approach”: - An additional approach for assessing debt sustainability in a limited number of borderline cases that uses country-specific information to help determine the risk of external debt distress. - New assessment of the overall risk of debt distress: - Countries with significant vulnerabilities related to public domestic debt or private external debt, or both, are now assigned an overall risk of debt distress that flags these risks. ### Analytical underpinnings - Solvency criterion: - An economic agent is solvent if the present value (PV) of its income stream is at least as large as the PV of its expenditure plus any initial debt. - For a government: the PV of future primary balances must be greater than or equal to the public debt stock. - For a country as a whole: the PV of future non-interest current account balances must be greater than or equal to its external debt. - Relation to debt-to-GDP: - If the ratio of debt to GDP is on a non-explosive path (i.e., either stable or declining in the long run), the solvency condition is automatically met. - Liquidity risk: - Determined by currency composition, maturity structure, interest rate structure, and availability of liquid assets. - DSF uses indicative thresholds that vary with the quality of a country’s policies and institutions. ### Structure: External DSA vs. Public DSA - The DSF has two components: - External DSA: covers total external debt in the economy, owed by both public and private sectors. - Public DSA (fiscal DSA): covers total debt of the public sector, both external and domestic. - Public and publicly guaranteed (PPG) external debt: - Public external debt and external debt guaranteed by the public sector are combined as PPG external debt. - The DSF lumps these into PPG external debt; publicly guaranteed debt is defined as debt liabilities of public and private sector units, the servicing of which is contractually guaranteed by public sector units. - The DSF does not capture private domestic debt. ### External risk rating - All DSAs include an external risk rating—an explicit assessment of a country’s risk of external debt distress—guided solely by the outlook for PPG external debt. - Four possible external risk ratings: - low - moderate - high - in debt distress ### Overall risk of debt distress - An assessment of the overall risk of debt distress complements the external risk rating by highlighting vulnerabilities related to: - Private external debt. - Public domestic debt. - Intended to inform macroeconomic and structural policy dialogue, including the design of debt limits in Fund-supported programs. ### Debt burden indicators - Debt sustainability is assessed via projected evolution of debt burden indicators: ratios of debt stock or debt service relative to measures of repayment capacity (GDP, export proceeds, or fiscal revenue). - Total of eight debt burden indicators in the DSF: - Five in the external DSA. - Three in the public DSA. - When remittances are incorporated into the analysis, three of the five external DSA indicators are modified. - Purpose of indicators: - Solvency indicators (debt stock relative to repayment capacity) reflect long-term solvency risks. - Liquidity indicators (debt service ratios) indicate likelihood and timing of liquidity problems. ### Table of DSF debt burden indicators (descriptive uses) - Present value of PPG external or public debt to GDP: - Compares debt burden with resource base; common but may be misleading where exports are a small proportion of GDP. - Present value of PPG external debt to exports of goods and services: - Compares debt burden with capacity to generate foreign exchange receipts; more precise but may be volatile and incomplete without remittances. - Present value of PPG external or public debt to fiscal revenue: - Compares debt burden with public resources available for repayment; critical for relatively open economies with heavy debt-service burdens. - PPG external debt service to exports: - Indicates share of export revenue used to service debt; highlights vulnerability to falls in export proceeds and significance of short-term debt. - PPG external or public debt service to fiscal revenue: - Indicates share of fiscal revenue used for debt-service payments; captures vulnerability to variations in fiscal revenue. ### Presentation and usability - The DSF includes an Excel-based DSA template intended for use by IMF and World Bank staff and LIC authorities to produce their own DSAs. - The guidance note complements the document approved by the Executive Boards of the IMF and IDA in the context of the 2012 review and provides comprehensive instructions, operational guidance, and technical detail on DSAs for LICs. *Source: EXECUTIVE SUMMARY (November 5, 2013).* ### 17. Debt stock indicators in the DSF are in present value rather than nominal terms. The ### _110513 - 17. Debt stock indicators in the DSF are in present value rather than nominal terms. ### Present value (PV) versus nominal debt; grant element (GE) - The PV of debt is equal to the sum of all future debt service (DS) payments (principal and interest), discounted to the present using a given discount rate (β). - The PV of debt is a more relevant indicator for LICs, as it takes into account the concessionality, or grant element, of the debt. - If the discount rate and the contractual interest rate of a loan are the same, then the PV is equal to (or close to) the face value. - If the contractual interest rate of the loan is less than the discount rate, then the PV of the debt is less than the face value, implying that the loan has some degree of concessionality. - The grace period, maturity, and frequency of payments associated with the loan also affect its concessionality. - The grant element (GE) measures the concessionality of a loan, calculated as the difference between the nominal and present value, expressed as a percentage of the nominal value. - Loans with a relatively high grant element are typically provided by multilateral and bilateral external creditors; the nominal value of these loans therefore tends to be higher than the PV. - Loans from external commercial creditors and domestic creditors are typically contracted on market terms, with little or no concessionality. - The DSF assumes that the present value of public domestic debt is equal to its nominal value – i.e., the discount rate and the contractual interest rate of domestic liabilities are assumed to be the same. ### Discount rate - The DSF uses a single discount rate of 5 percent. - A single uniform discount rate is used in calculating the present value of external debt in the DSF and in calculating the grant element of loans for the implementation of the Bank’s Non-Concessional Borrowing Policy and the Fund’s policy on debt limits in Fund-supported programs. - The rate will remain unchanged until the completion of the next review of the DSF by the Executive Boards of the Bank and the Fund, expected in 2015. ### Thresholds for PPG external debt (external DSA) - A core feature of the DSF is the existence of indicative thresholds in the external DSA to anchor the analysis of PPG external debt. - Thresholds demarcate “danger zones” where the risk of debt distress is elevated; the external risk rating is assigned by comparing the projected evolution of the five PPG external debt indicators to their respective thresholds. - Thresholds are policy-dependent: they vary depending on the quality of the country’s policies and institutions, measured by its Country Policy and Institutional Assessment (CPIA) score. - Thresholds were re-estimated econometrically by IMF and World Bank staff at the time of the 2012 review of the DSF; results validated prior thresholds except for debt service to revenue ratios, which were revised lower. - Table 2. PPG External Debt Thresholds (by CPIA quality) - Weak: - PV of PPG external debt in percent of GDP: 30 - PPG external debt service in percent of Exports: 100 - PPG external debt service in percent of Revenue: 200 - (Other indicators shown): Exports 15, Revenue 18 - Medium: - PV of PPG external debt in percent of GDP: 40 - PPG external debt service in percent of Exports: 150 - PPG external debt service in percent of Revenue: 250 - (Other indicators shown): Exports 20, Revenue 20 - Strong: - PV of PPG external debt in percent of GDP: 50 - PPG external debt service in percent of Exports: 200 - PPG external debt service in percent of Revenue: 300 - (Other indicators shown): Exports 25, Revenue 22 ### Benchmarks for total public debt (public DSA) - The DSF includes benchmarks in the public DSA to guide analysis of total public debt. - For the 2012 review, IMF staff derived benchmarks for the PV of public debt to GDP. - Benchmarks vary depending on a country’s CPIA score and designate levels above which the risk of public debt distress is heightened. - Table 3: Public Debt Benchmarks (PV of total public debt in percent of GDP) - Weak: 38 - Medium: 56 - Strong: 74 - Benchmarks differ from thresholds: thresholds play a fundamental role in external risk rating determination; benchmarks serve as reference points for triggering deeper discussion of public domestic debt. - For countries with total public debt to GDP moving rapidly toward or exceeding benchmarks, an in-depth analysis of public domestic debt vulnerabilities is required and significant vulnerabilities should be reflected in the overall risk of debt distress. ### CPIA index and policy performance categories - The CPIA is compiled annually by the World Bank for all IDA-eligible countries and consists of 16 indicators grouped into four categories: (1) economic management; (2) structural policies; (3) policies for social inclusion and equity; and (4) public sector management and institutions. - Countries are rated 1 (lowest) to 6 (highest) on each criterion. - DSF policy performance categories by CPIA score: - Weak: CPIA score less than or equal to 3.25. - Medium: CPIA score greater than 3.25 and less than 3.75. - Strong: CPIA score greater than or equal to 3.75. - The three-year moving average CPIA is used to determine a country’s category. - If, after release of a new annual CPIA score, the updated three-year moving average breaches a CPIA boundary, the country’s category changes immediately only if the size of the breach exceeds 0.05; if the breach is at or below 0.05, the category changes only if the breach is sustained for two consecutive years. - DSA write-ups should highlight any changes to a country’s CPIA score and discuss the impact on the external risk rating. ### Coverage of public sector debt - Coverage should be as broad as possible and consistent with fiscal accounts monitored for surveillance and program purposes. - Public sector debt should include obligations of the central government, regional and local governments, the central bank, and public enterprises (including enterprises the government controls by owning more than half of the voting shares). - Data limitations may restrict coverage (e.g., to central government only); country teams should seek the broadest coverage data allow. ### External vs. domestic debt definitions - DSF generally defines external and domestic debt based on creditor residency: debt owed to a non-resident is external; debt owed to a resident is domestic. - External debt could include debt denominated in local currency and owed to a non-resident; domestic debt could include debt denominated in foreign currency and owed to a resident. - Practical issues: in advanced LICs with open capital accounts, secondary market trading may pass government debt between residents and non-residents; record-keeping difficulties may lead to using domestically-issued debt as a proxy for domestic debt. - Alternative: define external and domestic debt on a currency of denomination basis. - DSA write-up should disclose which definition is used and note large divergences in shares of domestic and external debt depending on definition. ### Gross vs. net debt - The DSF is primarily concerned with the evolution of gross public debt—the total stock of outstanding liabilities of the public sector. - If the government has significant financial assets that could be liquidated quickly to service debt (e.g., large government deposits from oil revenue), gross debt may overstate probability of debt distress. - In such cases, report public net debt as a complementary measure to reflect mitigating factors; the write-up should clearly disclose the definition of net debt used. - Use of a standard statistical definition of net debt in line with the Public Sector Debt Statistics Guide is recommended. ### Baseline scenario and stress tests - Debt sustainability analysis is built around a baseline scenario and stress tests. - The baseline scenario represents the path deemed most likely, derived from assumptions and projections of key macroeconomic variables. - Stress tests gauge sensitivity of the baseline to shocks and changes in assumptions. - The DSA template automatically generates the projected path, over the next 20 years, of each debt burden indicator in the external DSA and the public DSA; this is the baseline scenario. - The template simultaneously applies a set of standardized stress tests, causing debt burden indicators to deviate from baseline. - The evolution of indicators in baseline and under stress tests is assessed against relevant thresholds (external DSA) and benchmarks (public DSA) to determine external risk rating and overall risk of debt distress. - The DSF’s 20-year projection horizon is intended to capture returns on investment and the long maturities and grace periods associated with concessional debt. - The most extreme stress test is defined as the test that yields the highest level of debt on or before the tenth year of the projection period. - For external DSA indicators, template displays baseline, historical scenario (a type of stress test), the most extreme stress test, and the relevant threshold. - For public DSA indicators, template displays baseline, historical scenario, the most extreme stress test, the stress test that fixes the primary balance, and the relevant benchmark for public debt to GDP. ### Who uses the DSF and how - Users: IMF and World Bank staff, creditors who finance LICs, and LICs themselves. - IMF and World Bank staff: - Use DSF to inform analysis and policy advice, assessment of macroeconomic stability, long-term sustainability of fiscal policy, and overall debt sustainability. - DSF informs IMF program design, including design of debt limits. - DSF itself does not impose borrowing limits; results inform separate Fund and Bank policies that establish limits on debt accumulation. - Creditors: - A growing community of donors and lenders use the DSF to inform financing decisions. - Since 2005, IDA used DSA external risk ratings to determine share of grants and loans in assistance to LICs. - Regional development banks and the Paris Club rely on DSAs for grant and lending decisions and restructurings. - Borrowers (LICs): - DSF guides LIC borrowing decisions to balance development goals and debt sustainability. - Helps identify debt-related vulnerabilities and formulate policies consistent with maintaining or achieving debt sustainability. - Can evaluate impact of debt-financed investment, alternative financing options, and potential shocks. - Useful for countries benefiting from debt relief to determine appropriate pace of debt reaccumulation. - Preparation of DSAs should involve officials responsible for macro-fiscal policy and forecasting. - The DSF provides inputs useful for medium-term debt management strategy (MTDS) development to operationalize debt management objectives and address vulnerabilities uncovered in the DSA. *Staff Guidance Note on the DSF for LICs — extracted content unit* ### 43. A DSA starts with a macroeconomic framework—a set of interrelated projections of ### _110513 - 43. A DSA starts with a macroeconomic framework—a set of interrelated projections of ### Macroeconomic framework: role and requirements - A DSA starts with a macroeconomic framework—a set of interrelated projections of key macroeconomic variables from different sectors of the economy. - Projections must be realistic, consistent with each other, and consistent with the policies of the country authorities. - An unrealistic or incoherent macroeconomic framework will lead to inaccurate and possibly misleading results in the DSA. - IMF and World Bank staff should engage with country authorities on projected new public borrowing (external and domestic), especially for the first one or two years of the projection period. - Borrowing projections beyond the initial years are more uncertain; staff should discuss medium- and long-term trends (for example, a trend toward less concessional borrowing or increasing reliance on domestic financing) and ideally rely on the authorities’ debt management strategy based on an MTDS analysis. - The template requires assumptions about the terms of marginal public borrowing to apply in stress tests that result in additional public borrowing. ### Macroeconomic variables in the DSA template (summary of Table 4) - For most variables, the user must input historical data (previous 10 years) and projected values (next 20 years). Data must be entered in national currency or U.S. dollars depending on the variable. - Select variables and currency treatment (historical/projections indicated by check marks in the source): - Balance of payments (U.S. dollars): Current account balance ( historical,  projections), Exports of goods and services (, ), Imports of goods and services (, ), Current transfers, net total (, ), Current transfers, official (, ), Gross workers’ remittances (“personal transfers” in BPM6) (, ), Net foreign direct investment (excluding debt instruments) (, ), Exceptional financing (, ), Gross reserves (flow) (, ). - Public sector (National currency): Public sector revenue (including grants) (, ), Public sector grants (, ), Privatization receipts (, ), Public sector expenditure (, ), Public sector assets (, ), Recognition of implicit or contingent liabilities (, ), Other debt creating or reducing flows (, ), Debt relief (, ). - Debt (U.S. dollars or National currency as indicated): Stock of PPG external debt (medium and long term) (U.S. dollars,  historical only), Stock of PPG external debt (short term) (U.S. dollars, , ), Stock of private external debt (medium and long term) (U.S. dollars, , ), Stock of private external debt (short term) (U.S. dollars, , ), Stock of public domestic debt (medium and long term) (National currency, , ), Stock of public domestic debt (short term) (National currency, , ), o/w foreign currency denominated public domestic debt (National currency, , ). - Interest and amortization entries (as in Table 4): Interest due on PPG external debt (U.S. dollars,  historical only), Interest due on private external debt (U.S. dollars, , ), Interest due on public domestic debt (National currency, , ), o/w on foreign currency denominated public domestic debt (National currency, , ), Amortization due on PPG external debt (U.S. dollars,  historical only), Amortization due on private external debt (medium and long term) (U.S. dollars, , ), Amortization due on public domestic debt (U.S. dollars, , ), New disbursements of PPG external debt (U.S. dollars,  projections only), Stock of outstanding PPG arrears (U.S. dollars,  projections only), Interest due on existing PPG external debt (U.S. dollars,  projections only), Amortization due on existing PPG external debt (U.S. dollars,  projections only). - Other: GDP, current prices (U.S. dollars, , ), GDP, constant prices (National currency, , ), U.S. GDP deflator (None, , ), Exchange rate versus U.S. dollar, end of period (National currency, , ), Exchange rate versus U.S. dollar, average (National currency, , ). ### Assessing the realism of macroeconomic assumptions - Areas warranting special scrutiny: - Financing mix and terms: - Discuss financing mix between domestic and external debt, and concessional vs nonconcessional debt (and grants). - For many LICs, terms of new external borrowing are expected to gradually worsen over time as reliance shifts from concessional to market-based financing. - An assumption of continuous borrowing on highly concessional terms—or an improvement in terms—needs explanation, especially for countries already borrowing nonconcessionally. - For LICs developing domestic debt markets, domestic debt share would normally increase over time; a rapid increase may be inconsistent with market capacity. - Large fiscal adjustments: - Large fiscal adjustment in LICs needs strong justification given infrastructure gaps, social needs, and shallow tax bases. - Questions: Is the magnitude unprecedented in the country’s history or exceptionally large compared to other LICs? What drives the adjustment? - Large growth accelerations: - Large GDP growth accelerations need justification; growth projections should capture the impact of public investment on growth and be mindful of past performance and trends in other LICs. - A baseline assuming large scaling up of investment with high-growth dividends should be substantiated. - Large FDI projections: - DSAs should not rely on unrealistically large FDI inflows to finance current account deficits; FDI can increase imports of capital goods and later lead to profit/dividend outflows. - Large deviations between baseline and historical scenarios: - The DSF’s “historical scenario” freezes key macro variables at their 10-year historical average. Significant lower debt ratios in baseline vs historical scenario may signal excessive optimism and must be explained (e.g., structural break, recent structural improvements, depletion of natural resource endowment). - Past projections: - Scrutinize past projections; if previous projections were too optimistic, current forecasts need greater scrutiny and a table comparing current vs past projections with explanations of major forecast errors should be included. ### Strengthening the analysis of public investment and growth - Criticism: DSF does not adequately capture benefits of debt-financed public investment; productive investment can raise short-run debt ratios but generate higher growth, revenue, and exports, lowering debt ratios over time. - Empirical cautions: - Prolonged growth accelerations are rare. - Macroeconomic returns to public investment (impact on GDP, government revenues, exports) tend to be considerably lower than rates of return on individual projects. - Quality of policies and institutions has a large influence on macroeconomic return of public investment. - DSA write-up requirements: - Full DSA write-ups should include, at minimum, a discussion of determinants of growth, including public investment. - Use of simple analytical techniques (e.g., growth accounting) is appropriate in many cases. - Where scaling-up of public investment is ongoing or anticipated, more complex and resource-intensive analytical techniques could be used. - IMF and World Bank staff have developed models on the nexus between public investment and growth; Annex 2 contains more information and guidance on estimating the impact of public investment on growth. ### Incorporating remittances - Remittances context: - World Bank estimates remittance flows to LICs increased from $1.4 billion in 1990 to $32billion in 2011. - Among the top ten recipients, remittances ranged between 18 and 47 percent of GDP. - Remittances are relatively reliable compared to other inflows. - How remittances are used in DSF: - Remittances are used to inform assessment of external debt distress by adding them to the denominator of three external DSA debt burden indicators: - PV of debt to the sum of GDP + remittances - PV of debt to the sum of exports + remittances - Debt service to the sum of exports + remittances - Adding remittances to denominators lowers debt burden indicators; these adjusted indicators are compared to remittance-adjusted indicative thresholds (Table 5). - Remittance-adjusted threshold adjustments: - Remittance-adjusted thresholds for PV of debt to GDP are 10 percent lower than corresponding thresholds without remittances. - Remittance-adjusted thresholds for PV of debt to exports and debt service to exports are 20 percent lower. - Remittance-adjusted thresholds (Table 5) by Quality of policies and institutions (CPIA): - Weak: - PV of PPG external debt in percent of GDP + remittances: 30 - PPG external debt in percent of Exports + remittances: 27 - PPG external debt in percent of Revenue: 100 - PPG external debt service in percent of Exports + remittances: 80 - PPG external debt service in percent of Revenue: 200 - PPG external debt service in percent of Exports + remittances (alternate column): 15 - (Other columns shown in table: 12, 18) - Medium: - PV of PPG external debt in percent of GDP + remittances: 40 - PPG external debt in percent of Exports + remittances: 36 - PPG external debt in percent of Revenue: 150 - PPG external debt service in percent of Exports + remittances: 120 - PPG external debt service in percent of Revenue: 250 - (Other columns: 20, 16, 20) - Strong: - PV of PPG external debt in percent of GDP + remittances: 50 - PPG external debt in percent of Exports + remittances: 45 - PV of PPG external debt in percent of Revenue: 200 - PPG external debt service in percent of Exports + remittances: 160 - PPG external debt service in percent of Revenue: 300 - (Other columns: 25, 20, 22) - Additional guidance on use of remittances: - Incorporating remittances does not necessarily improve debt outlook because indicative thresholds are lowered as well. - The larger the remittances, the more likely their inclusion will improve the debt outlook. - The relative growth rates of remittances vs GDP and exports matters; if remittances are large initially but forecast to grow more slowly than GDP and exports, inclusion may not improve the picture. - Staff guidance on when to incorporate remittances: - Remittances must be presented as the base case in the DSA if they are large: defined as both greater than 10 percent of GDP and greater than 20 percent of exports of goods and services, measured on a backward-looking, three-year average basis. - If remittances are large, staff may still present results without remittances as an alternative case. - If remittances are not large, staff may present results with remittances as an alternative case; the write-up should discuss reliability and significance of remittances. - If the alternative case yields a more favorable (or less favorable) debt outlook, staff may use it to inform the risk rating but must provide a thorough justification. ### Accounting for HIPC Initiative and MDRI debt relief - Baseline and customized scenario treatment: - For post-completion point countries: - DSA should incorporate HIPC Initiative and MDRI debt relief in the baseline scenario. - Assumption of full debt relief on HIPC terms from all external creditors should be maintained while authorities are actively working toward concluding bilateral agreements and prospects for concluding such agreements are deemed reasonable. - Once full debt relief on HIPC terms is unlikely, the baseline should reflect the amount legally owed less any expected debt relief. - For countries in interim period between decision point and completion point: - Baseline should assume HIPC interim relief (risk rating should not be predicated on reaching completion point). - HIPC and MDRI debt relief starting at assumed completion point date should be incorporated in a customized scenario. - For countries not yet at decision point but with IMF and IDA Executive Boards having reviewed the HIPC preliminary document: - Baseline should incorporate only traditional debt relief. - Interim HIPC relief starting at assumed decision point date should be incorporated in a customized scenario. ### Assessing risks: standardized stress tests - Purpose: - Stress tests gauge sensitivity of the baseline scenario to shocks and changes in assumptions. - The DSA template automatically applies a series of standardized stress tests within the external DSA and the public DSA. - Same standardized stress tests applied across all countries; calibration uses 10 years of historical data to capture country-specific characteristics. - Stress tests are partial-equilibrium analyses (macroeconomic adjustment process to shocks not taken into account). - Two types of stress tests: - Alternative scenarios: permanent modifications to key assumptions in the baseline. - Bound tests: temporary shocks lasting one or two years, after which variables return to baseline values. Bound tests calibrated to yield roughly a 25 percent probability of shock occurrence at a 10-year horizon. - Total: 16 standardized stress tests (external DSA: 2 alternative scenarios, 6 bound tests; public DSA: 3 alternative scenarios, 5 bound tests). - External DSA stress tests (Table 6): - Alternative scenarios (permanent): - A1. Historical — Real GDP growth, GDP deflator, non-interest current account, and net FDI flows set to their historical averages - A2. External financing — External borrowing assumed to be less concessional (by 200 basis points) - Bound tests (temporary, usually in second and third year unless otherwise noted): - B1. Real GDP growth — Real GDP growth set to its historical average minus one standard deviation - B2. Exports — Nominal export growth (in USD) set to its historical average minus one standard deviation - B3. Deflator — Domestic GDP deflator (in USD) set to its historical average minus one standard deviation - B4. Other flows — Current transfers-to-GDP and FDI-to-GDP ratios set to their historical average minus one standard deviation - B5. Combination of B1 through B4 — Each variable set to its historical average minus half a standard deviation - B6. Depreciation — One-time 30 percent nominal depreciation of the domestic currency in the first year of the projection period - Public DSA stress tests (Table 6): - Alternative scenarios (permanent): - A1. Historical — Primary balance-to-GDP ratio and real GDP growth set to their historical averages - A2. Primary balance — Primary balance-to-GDP ratio set to its value in the first year of the projection period - A3. Lower real GDP growth — Real GDP growth lowered by a fraction of its standard deviation - Bound tests: - B1. Real GDP growth — Real GDP growth set to its historical average minus one standard deviation - B2. Primary balance — Primary balance-to-GDP ratio set to its historical average minus one standard deviation - B3. Combination of B1 and B2 — Real GDP growth and primary balance-to-GDP ratio set to their historical average minus half a standard deviation - B4. Depreciation — One-time 30 percent nominal depreciation of the domestic currency in the first year of the projection period - B5. Other debt-creating flows — One-time increase in other debt-creating flows amounting to 10 percent of GDP in the second year of the projection period *Staff Guidance Note on the DSF for LICs — Extracted content provided in the input PDF.* ### Box 4. How Stress Tests Work in the DSF ### Box 4. How Stress Tests Work in the DSF ### Overview - Stress tests in DSF are deterministic rather than stochastic: shocks of a certain magnitude are assumed to take place with certainty, based on a particular algorithm. - Impacts are channeled through: - changes in the evolution of indebtedness; and - changes in the capacity to repay. ### A1 — Historical scenario in the external DSA - Method: - Generates an alternative path of debt by freezing four key variables at their 10-year historical averages: the non-interest current account balance, net FDI, real GDP growth, and the GDP deflator in U.S. dollar terms. - Assumes continuation of the average historical performance; serves as a benchmark against which baseline realism is tested. - Mechanism illustrated: - Real GDP growth ↓ - GDP deflator (in US$) ↓ - Non-interest current account ↓ - Net FDI ↓ - Nominal GDP ↓ - Public sector revenue ↓ - Export level ↓ - Gross financing requirement ↑ - Debt ↑ - Amortization and interest ↑ - Key assumptions: - All current account components and public sector revenue are unchanged in percent of GDP, so reductions in nominal GDP imply proportional reductions in exports and public sector revenue. - Increased financing need is met by additional public external borrowing; private sector external borrowing is assumed unchanged. - Additional public borrowing occurs on terms specified in the template and is not met by government policy adjustments. - Outcomes: - Historical scenario typically causes debt burden indicators to deteriorate (decline in capacity to repay paired with increased indebtedness). - If historical performance was stronger than projected future performance, the historical scenario can yield a more favorable debt path than the baseline. ### B1 — Bound test in the public DSA (temporary shock to real GDP growth) - Shock specification: - In the second and third year of the projection period, real GDP growth is set to its 10-year historical average minus one standard deviation. Thereafter, real GDP growth returns to its baseline projection. - Mechanism: - Real GDP growth ↓ - Nominal GDP growth ↓ - Government revenue ↓ - Primary deficit ↑ - Gross financing requirement ↑ - Debt ↑ - Amortization and interest ↑ - Key assumptions and consequences: - Shock has a permanent impact on the level of real GDP and nominal GDP because (1) growth returns to baseline after the shock and (2) inflation (GDP deflator) remains unchanged. - Revenue-to-GDP ratio unchanged → proportional decline in nominal public revenue. - Government spending assumed unchanged → wider non-interest (primary) fiscal deficit, increased financing needs, and additional borrowing. - Grants remain the same in nominal terms as in the baseline, and therefore increase as a percent of GDP. - Additional borrowing increases indebtedness and future debt service, which raises future financing needs. ### Caveats and extreme results - Stress tests may produce extreme or improbable results when: - The 10-year historical period includes non-representative events (e.g., a war) that skew historical averages and standard deviations. - A recent structural break (e.g., large natural resource discovery) makes historical averages uninformative. - Guidance: - Staff should present results as they are but explain why they should be interpreted with caution. - In rare cases, a stress test can be excluded when there is consensus it is uninformative or misleading. ### Customized scenarios (Box 5) — when and why to use them - Rationale: - Standardized tests use 10 years of historical data and the same types of shocks across countries to ensure comparability of risk ratings, but may miss idiosyncratic vulnerabilities. - Customized scenarios can capture country-specific risks overlooked by standardized tests. - Examples of situations warranting customized scenarios: - High investment/high growth - Special scrutiny when baseline assumes large growth dividends from debt-financed investment programs (benchmark: growth rates of at least one standard deviation above the historical average). - Recommend a customized scenario assuming little or no growth payoff; if omitted, document staff views on realism. - Contingent liabilities - DSF includes one standardized stress test: a 10-percent-of-GDP increase in debt creating flows in the second year of the projection period. - More country-specific scenarios may be warranted for contingent liabilities from state-owned enterprises, sub-national governments, PPPs, financial sector weaknesses, etc. - Narrow export base - For exports concentrated in a single commodity, design a scenario exploring sensitivity to price changes exceeding the standardized export shock. - Tail risks - Customized scenarios can assess low probability, high-consequence events (e.g., catastrophic financial shock, natural disaster). - Fund financing - For IMF program countries, baseline includes projected Fund disbursements. A customized scenario can exclude Fund financing to assess its impact on debt indicators. - Use in assessment: - Assessment of risk of debt distress should begin with baseline and standardized stress tests. - Customized scenarios can inform the assessment, but departures from standardized-test-implied risk ratings must be justified. - It is reasonable to consider a customized scenario if it captures an important vulnerability overlooked by standardized tests; unreasonable to downgrade based on a very low probability tail-risk scenario. ### When and how to conduct deeper analysis of domestic debt - Context: - Domestic public debt is becoming more prominent in some LICs; compared to external debt, domestic debt tends to be more expensive and have shorter maturities. - Benchmarks: - Public DSA includes benchmarks for the PV of public debt to GDP varying by CPIA score; benchmarks serve as triggers for deeper domestic debt analysis. - Characteristics to analyze (where relevant and data available): - Level: A breach of the public debt-to-GDP benchmark may or may not imply high domestic debt. - Trends: Recent accumulation and projected pace of domestic debt accumulation. - Maturity: Shorter maturities imply greater rollover and interest rate risk. - Currency composition: Domestic debt may include foreign currency obligations when defined on a residency basis; a high share of foreign currency increases exchange rate vulnerability and reserve pressure. - Creditor base: Diversification and composition (domestic vs. foreign) affect rollover risk. - Fixed vs. floating interest rates: Floating rates imply greater interest rate risk. - Contingent liabilities: Extent not reflected in domestic debt stock. - If domestic debt risks are significant, reflect them in the overall risk of debt distress assessment. ### Risks associated with private sector external debt - External DSA covers total external debt (public and private) but risk ratings focus on PPG external debt because public external debt often dominates and private data are limited. - Concerns as private external debt rises: - Competes with public sector for foreign exchange, raising balance of payments pressures. - Increases government exposure to contingent liabilities if private sector requires intervention. - High private external borrowing by the banking sector could lead to government recapitalization and spikes in public debt. - Guidance: - Where private external debt is substantial or projected to grow rapidly, the DSA write-up should discuss these risks and, if significant, reflect them in the overall risk assessment. ### Risks associated with debt owed to private external creditors - Advanced LICs with a high share of market-term public external debt (e.g., international bonds) face additional risks: - Abrupt shifts in market sentiment can cause sudden capital outflows and reserve pressure. - Liquidity and interest rate risks from spikes in debt service as bonds mature. - Adequacy of foreign exchange reserves should be assessed, especially where short-term domestic interest rates are high and average time to maturity of outstanding domestic debt is short. ### Determining the external risk rating - The external risk rating is derived from the external DSA based on projected PPG external debt indicators and is the explicit assessment of a country’s risk of external debt distress. - Operational importance: - Has operational implications for IDA and other creditors and informs IMF policy on debt limits in Fund-supported programs and IDA’s Non-Concessional Borrowing Policy. - All DSAs should include a risk rating. - Scope: - Risk rating is based strictly on PPG external debt indicators; private external debt is excluded unless explicitly government-guaranteed and thus part of PPG external debt. - Four possible risk ratings: - Low risk: All debt indicators are below their relevant thresholds, including under stress tests. - Moderate risk: Baseline does not lead to breaches of thresholds, but stress tests result in one or more breaches. - High risk: Baseline results in a breach of one or more thresholds, but the country does not currently face payment difficulties. - In debt distress: Current debt and debt service ratios are in significant or sustained breach of thresholds. Actual or impending debt restructuring negotiations, or the existence of arrears, would generally suggest debt distress. - Role of customized scenarios: - Can inform assessment, but departures from standardized-test-implied ratings must be justified. - Use of judgment alongside thresholds: - Thresholds are fundamental but should not be applied mechanistically; judgment should consider context. - Factors to consider when applying judgment: - The magnitude, duration, and number of breaches: large, protracted breaches are more worrisome. - The pace of debt accumulation: rapid increases, particularly in debt service indicators, may be concerning even without threshold breaches. - Ability to pay not captured in the template: e.g., large foreign exchange reserves or liquid public sector assets usable at fair value. - Relevance of a given stress test: e.g., a 30-percent depreciation stress test may overstate risks for a country with a longstanding fixed exchange rate whose external debt is denominated primarily in the pegged currency. *Source: Staff Guidance Note on the DSF for LICs — Box 4. How Stress Tests Work in the DSF.* ### 77. A new feature of the DSF is the option to use, in borderline cases, an alternative ### 77. A new feature of the DSF is the option to use, in borderline cases, an alternative ### Probability approach: methodology and relation to traditional approach - The "probability approach" focuses on the evolution of the probability of debt distress over time, rather than on the evolution of debt burden indicators. - It provides complementary, country-specific information to help decide cases where a country’s risk rating is on the border between two categories. - Under the traditional approach, assessment compares the evolution of five PPG external debt burden indicators to their respective thresholds in the baseline scenario and under standardized stress tests. - Under the probability approach, the projected probability of debt distress (expressed as a percent) associated with each debt burden indicator is compared to a threshold level in the baseline scenario and under standardized stress tests. - The probability of debt distress is derived from the same equation used to estimate the PPG external debt thresholds, but: - The probability approach incorporates a country’s individual CPIA score and average GDP growth rate. - The traditional approach uses one of three discrete CPIA values: 3.25 for weak performers, 3.50 for medium performers, and 3.75 for strong performers, and an average growth rate across LICs. - The probability thresholds are consistent with the probability values used to re-estimate the PPG external debt thresholds for the 2012 review. - Implementation notes: - The DSF uses the same three-year moving average CPIA used to determine a country’s policy performance category. - To generate a country-specific growth rate, the DSF calculates the average real GDP growth rate over a 25-year period consisting of 5 years of historical growth rates and 20 years of projected growth rates. ### Borderline cases: definition and determination - A borderline case is defined as one where the largest breach, or near breach, of a threshold falls within a 10-percent band around the threshold. - When determining whether a country is a borderline case, the template considers breaches or near breaches of thresholds in the baseline scenario, the historical scenario, and the most extreme stress test. - Example from the hypothetical country in Figure 8: - The largest breach occurs in 2025, when the PV of debt to exports rises to 156.8 compared to a threshold of 150. - A 10-percent band around the threshold implies a range of 142.5 to 157.5; the breach falls within the band, so the country is considered a borderline case. - For borderline cases, the final determination of the risk rating should take into account: - Results of both the traditional approach and the probability approach. - Country-specific factors other than the CPIA score and the average GDP growth rate. ### 10-percent bands used to determine borderline cases (Table 7) - Without remittances - Quality of policies and institutions (CPIA) — PV of PPG external debt in percent of GDP - Weak: 28.5−31.5 - Medium: 38−42 - Strong: 47.5−52.5 - PPG external debt service in percent of Exports - Weak: 95−105 - Medium: 142.5−157.5 - Strong: 190−210 - PPG external debt service in percent of Revenue - Weak: 190−210 - Medium: 237.5−262.5 - Strong: 285−315 - PPG external debt service in percent of Exports (alternative column values) - Weak: 14.25−15.75 - Medium: 19−21 - Strong: 23.75−26.25 - PPG external debt service in percent of Revenue (alternative column values) - Weak: 17.1−18.9 - Medium: 19−21 - Strong: 20.9−23.1 - With remittances - Quality of policies and institutions (CPIA) — PV of PPG external debt in percent of GDP + remittances - Weak: 25.65−28.35 - Medium: 34.2−37.8 - Strong: 42.75−47.25 - PPG external debt service in percent of Exports + remittances - Weak: 76−84 - Medium: 114−126 - Strong: 152−168 - PPG external debt service in percent of Revenue (with remittances) - Weak: 190−210 - Medium: 237.5−262.5 - Strong: 285−315 - PPG external debt service in percent of Exports + remittances (alternative column values) - Weak: 11.4−12.6 - Medium: 15.2−16.8 - Strong: 19−21 - PPG external debt service in percent of Revenue (alternative column values) - Weak: 17.1−18.9 - Medium: 19−21 - Strong: 20.9−23.1 ### Types of borderline cases - Four practical types of borderline cases: - Borderline low/moderate: debt burden indicators are below thresholds in the baseline, but a threshold is nearly breached (within the band) under a standardized stress test. - Borderline moderate/low: debt burden indicators are below thresholds in the baseline, but there is a small breach (within the band) under a standardized stress test. - Borderline moderate/high: stress tests result in one or more breaches, and a threshold is nearly breached (within the band) in the baseline. - Borderline high/moderate: stress tests result in one or more breaches, and there is a small breach (within the band) of a threshold in the baseline. - The hypothetical country in Figure 8 is a borderline moderate/low case: - All debt burden indicators are below thresholds in the baseline scenario, but there is a small breach of the PV of debt-to-exports threshold under a standardized stress test. - The probability approach shows no breaches, suggesting a low risk of external debt distress for this hypothetical case. - Theoretical note: - A country could be simultaneously borderline low/moderate and borderline moderate/high if all debt burden indicators are within the 10-percent band in both the baseline and under stress tests; this situation is unlikely. ### Determining the overall risk of debt distress - The external risk rating is based strictly on risks emanating from PPG external debt and may provide an incomplete picture if there are significant risks from public domestic debt or private external debt. - Purpose of overall risk of debt distress assessment: flag additional risks not captured by the external risk rating. - Use of assessments: - External risk rating informs financing decisions of IDA and other creditors. - Assessment of the overall risk of debt distress informs macroeconomic and structural policy dialogue with country authorities. - Guidance on reporting significant vulnerabilities: - If no significant vulnerabilities related to public domestic debt or private external debt, no need to assess overall risk of debt distress. - If significant vulnerabilities are identified, indicate clearly at the beginning of the write-up (Annex 1) and include language in the chapeau paragraph reflecting the combination of external rating and additional vulnerabilities: - (Low external risk rating) → Country X faces a low risk of debt distress, based on an assessment of public external debt, but a heightened overall risk of debt distress, reflecting significant vulnerabilities related to [domestic debt and/or private external debt]. - (Moderate external risk rating) → Country X faces a moderate risk of debt distress, based on an assessment of public external debt, but a heightened overall risk of debt distress, reflecting significant vulnerabilities related to [domestic debt and/or private external debt]. - (High external risk rating) → Country X faces a high risk of debt distress, based on an assessment of public external debt. The assessment of high risk is reinforced by significant vulnerabilities related to [domestic debt and/or private external debt]. - (In debt distress) → Country X is in debt distress, based on an assessment of public external debt. Moreover, there are significant vulnerabilities related to [domestic debt and/or private external debt]. - Presumption for low or moderate external risk rating: - If public debt to GDP is moving rapidly toward, or exceeds, the relevant benchmark in the baseline scenario, the presumption is that significant vulnerabilities related to public domestic debt exist unless otherwise justified. - If confirmed by analysis, these vulnerabilities should be captured in the overall risk of debt distress. - Rationale: countries with a low or moderate external risk rating should not have excessive levels of public external debt; therefore breach or near breach of public debt benchmark likely reflects elevated public domestic debt. - For countries rated high or in debt distress, there is no presumption regarding vulnerabilities related to public domestic debt. ### Putting it all together: steps to produce a DSA - Step 1: Construct the macroeconomic framework. - Ensure projections are realistic and internally consistent. - If considering a significant scaling up of public investment, consider using IMF and World Bank staff models to assess impact on economic growth. - Step 2: Enter data from the macroeconomic framework into the DSA template. - Historical data covers the previous 10 years; projections cover the next 20 years. - Projections include new PPG external borrowing and the terms of borrowing. - Where appropriate, design customized scenarios that model relevant risks not captured by standardized stress tests. - Step 3: Assess risks within the external and public DSAs. - External DSA: - Compare projected evolution of PPG external debt indicators to thresholds in the baseline and under stress tests. - If remittances are large, include them in the base case and use remittance-adjusted thresholds. - Determine the risk of external debt distress. For borderline cases, take into account the probability approach. - Separately analyze projected evolution of private external debt; if risks are significant, flag them in the assessment of the overall risk of debt distress. - Public DSA: - Analyze projected evolution of public debt indicators in the baseline and under stress tests. - If public debt to GDP is moving rapidly toward, or exceeds, the relevant benchmark in the baseline, conduct in-depth analysis to determine the extent of public domestic debt vulnerabilities. - If significant vulnerabilities are detected, flag them in the assessment of the overall risk of debt distress. - Step 4: Draft the write-up. - Depending on circumstances, the write-up can be a full DSA or a light update (Annex 1). ### When a DSA must be produced: key situations - As a general rule, a DSA should be produced at least once every calendar year in the context of an IMF Board document or an IDA Board document. DSAs need not be produced exactly one year apart. - A new DSA is required in the following situations (which could result in more than one DSA in the same calendar year): - A request for IMF financing that would (i) involve exceptional access; and/or (ii) bring total access to more than 40 percent of quota, based on past scheduled (not necessarily drawn) and future scheduled disbursements, in any 24-month period; and/or (iii) involve a member with a high risk of debt distress or in debt distress. - Note: Until 14th General Review of Quota comes into effect the threshold mentioned in (ii) remains at 80 percent of quota, and no DSA update is required for financing requests of 10 percent of quota or less. Once 14th General Review of Quota is in effect the requirement to produce a new DSA can be waived for financing requests of 5 percent of quota or less. - For IMF program countries, any modification to a performance criterion related to debt limits, or request for a waiver for non-compliance with a performance criterion related to debt limits, where this would result in borrowing non-negligibly above levels assessed in the most recent DSA. - The requirement to produce a new DSA can be waived if the impact of the modification or waiver is negligible. - For countries subject to IDA’s Non-Concessional Borrowing Policy (NCBP), whenever authorities seek non-concessional borrowing going beyond levels assessed in the most recent DSA. - Countries subject to the NCBP include current IDA grant recipients or MDRI recipients. - All DSAs must be submitted to both the IMF’s and IDA’s Executive Boards, be it for discussion or for information. If one institution requires a DSA for its operations and the other institution is not expected to discuss the country in the next two months, the DSA should be sent to both Executive Boards for information simultaneously. *Source: STAFF GUIDANCE NOTE ON THE DSF FOR LICs — extracted content unit _110513* ### References ### References ### Bibliographic coverage and themes - Scholarly and policy literature cited focuses on debt sustainability, public investment, contingent liabilities, fiscal risks, and infrastructure financing, including both IMF and World Bank contributions. - Key recurring topics: Debt Sustainability Framework for Low-Income Countries (DSF), public debt and external debt analysis, treatment of contingent liabilities and government guarantees, public-private partnerships, public enterprise fiscal risk, and models linking public investment to growth. ### Selected cited works (as listed) - Abdih, Y., R. Chami, M. Gapen, and A. Mati, 2009, “Fiscal Sustainability in Remittance-Dependent Economies,” IMF Working Paper No. 09/190. - Barkbu, B., C. Beddies, and M. Le Manchec, 2008, “The Debt Sustainability Framework for Low-Income Countries,” IMF Occasional Paper, No. 266. - Buffie, Edward F., A. Berg, C. Pattillo, R. Portillo and L.F. Zanna, 2012, “Public Investment, Growth, and Debt Sustainability: Putting Together the Pieces,” IMF Working Paper forthcoming. - Cebotari, Aliona, 2008, “Contingent Liabilities: Issues and Practice,” IMF Working Paper No. 08/245. - Chakraborty S. and E. Dabla-Norris, 2009, “The Quality of Public Investment,” IMF Working Paper No. 09/154. - Chami, R., A. Barajas, T. Cosimano, C. Fullenkamp, M. Gapen and P. Montiel, 2008, “Macroeconomic Consequences of Remittances,” IMF Occasional Paper, No. 259. - Everaert, Greetje, M. Fouad, E. Martin, R. Velloso, 2009, “Disclosing Fiscal Risks in the Post-Crisis World,” IMF Staff Position Note 09/18. - Hemming, Richard et al, 2006, “Public-Private Partnerships, Government Guarantees, and Fiscal Risk.” - International Development Association and International Monetary Fund publications, 2003–2013, on Debt-Sustainability in Low-Income Countries, Staff Guidance Notes, operational frameworks, and related reviews (multiple entries across 2003, 2004a, 2004c, 2005, 2006a, 2006b, 2008, 2009, 2010, 2011, 2012, 2013a–2013e). - Irwin, Timothy C., 2007, “Government Guarantees: Allocating and Valuing Risk in Privately Financed Infrastructure Projects,” The World Bank. - Kraay, A., and V. Nehru, 2004, “When is Debt Sustainable?” World Bank, Policy Research Working Paper No. 3200. - Reinhart, Carmen and Kenneth Rogoff, 2009, “This Time Is Different: Eight Centuries of Financial Folly,” Princeton University Press. - Servén L., 2007, “Fiscal Rules, Public Investment, and Growth,” Policy Research Working Paper Series 4382, The World Bank. - Straub, S., 2008a and 2008b, papers on infrastructure and growth, World Bank Policy Research Working Paper Nos. 4460 and 4590. --- ### Annex 1. The DSA Write-up ### Purpose and presentation - The format of the DSA write-up depends on whether the DSA is a full DSA or a light update. - Both full DSAs and light updates should be presented to the IMF and IDA Executive Boards as a standalone document and should attach the standard figures and tables. ### Outline for a full DSA (structure and required content) - Header template: - Country X - Staff Report for [...] - Debt Sustainability Analysis - Risk of external debt distress: [low/medium/high/in debt distress] - Augmented by significant risks stemming from domestic public and/or private external debt? [yes/no] - Chapeau paragraph requirements: - Specify the country’s external risk rating based on the external DSA. - Provide a brief assessment of public debt dynamics based on the public DSA. - If significant vulnerabilities related to public domestic debt and/or private external debt exist, include an assessment of overall risk of debt distress. - A footnote linked to the chapeau paragraph should report the country’s three-year average CPIA score and policy performance category (weak, medium, or strong). - Sections and key items: - A. Background - Evolution of PPG external debt and total public debt in recent years. - Developments related to debt relief, where relevant. - Scope of debt included in the DSA (central government, general government, guaranteed debt, etc.). - Composition and structure of PPG external debt (creditors, concessionality of debt). - Composition and structure of public domestic debt. - Evolution of private external debt in recent years, where relevant. - B. Underlying Assumptions - Main changes to macroeconomic projections compared to the previous DSA. - Explanation of large differences between prior projections and actual outcomes. - Box describing main assumptions in the macroeconomic framework: projections of current account variables, external financing sources (FDI, public external borrowing, private external borrowing, exceptional financing), and dynamics of foreign reserves. - C. External DSA - Projected evolution of PPG external debt burden indicators compared to thresholds in the baseline scenario; discussion of breaches, if any. - Projected evolution under alternative scenarios and bound tests; discussion of breaches, if any. - Results of probability approach, where relevant. - Results of customized scenarios or alternative cases (e.g., with or without remittances), where relevant. - Vulnerabilities related to private external debt, where relevant. - D. Public DSA - Projected evolution of total public debt, including with respect to the benchmark on public debt to GDP. - Projected evolution under alternative scenarios and bound tests. - Vulnerabilities related to public domestic debt, where relevant. - Determination of the external risk rating. - Assessment of the overall risk of debt distress, where relevant. - Authorities’ views (authorities’ views and any disagreement with staff’s main findings should be reflected in concluding section of full DSAs).1 - E. Conclusion - Determination of the external risk rating. - Assessment of the overall risk of debt distress, where relevant. - Authorities’ views.2 ### Outline for a light update - Header template identical to full DSA. - Required content is more condensed: - A. Underlying Assumptions - Main changes to macroeconomic projections compared to the previous DSA. - B. External DSA - Projected evolution of PPG external debt burden indicators in baseline and under alternative scenarios and bound tests; results of probability approach where relevant; vulnerabilities related to private external debt; customized scenarios (e.g., with or without remittances). - C. Public DSA - Projected evolution of total public debt including with respect to benchmark on public debt to GDP; projected evolution under alternative scenarios and bound tests; vulnerabilities related to public domestic debt. - D. Conclusion - Determination of the external risk rating; assessment of the overall risk of debt distress, where relevant. --- ### Annex 2. Investment-Growth Models ### Purpose and guidance - Country teams may apply macroeconomic models analyzing links between public investment and economic growth, and implications for debt sustainability. - A spectrum of models, analytical tools and country knowledge should inform macroeconomic projections underlying the DSA; no single model suffices for all country-specific conditions. ### Models summarized - World Bank MAMS model (Maquette for MDG Simulations) - Quantifies investment needed to meet the Millennium Development Goals (MDG) and estimates impact on growth. - Government spending split between: (i) recurrent consumption, transfers, interest; and (ii) capital (investment) spending. - Spending classified by function: (i) social services, (ii) infrastructure, and (iii) “other government.” - Simulations show productivity gains, growth, and poverty reduction dividends of sector investments. - Model now runs in about 40 countries. - World Bank Spatial Approach - Helps countries assess proposed infrastructure investment plans by identifying priorities and formulating sequencing of projects. - Uses geo-referenced data for productive sectors and infrastructure networks. - Analyzes economic geography, evaluates returns from investment packages, and returns to coordinated projects.1 - IMF dynamic macroeconomic model for LICs - Fully-articulated, dynamic model to support debt sustainability analysis in LICs; especially suited to inform analysis of public investment surges.2 - Makes explicit: (i) investment-growth linkages; (ii) public external and domestic debt accumulation; (iii) fiscal policy reactions necessary to ensure debt sustainability; and (iv) macroeconomic adjustment required to ensure internal and external balance. - Considers external commercial, concessional, and domestic borrowing to finance investment surges, with taxes and transfers responding to stabilize debt levels over time. - Notes that where there are constraints on the pace or level of tax adjustments, debt sustainability problems may arise. - Judgment and country knowledge are required to complement model output; model specification cannot substitute for experience evaluating returns to sector policies and investments in LICs. 1 See World Development Report, World Bank, 2009. 2 See Buffie et al. (2012). More information about the model can also be found here. --- ### Annex 3. Treatment of Public Enterprises ### Definition and scope - The DSF defines the public sector as the central government, regional and local governments, the central bank, and public enterprises. - Public enterprises include all enterprises that the government controls, such as by owning more than half of the voting shares.1 ### Criteria and guidance for excluding an SOE from the DSA - An enterprise’s external debt may be excluded from the external DSA, and its total debt from the public DSA, if: - The enterprise can borrow externally without a public guarantee. - Its operations pose limited fiscal risk. - The case for exclusion should be explicitly described in the write-up and based on the following assessments: - Collect information on managerial independence; relations with the government; periodicity of audits; publication of comprehensive annual reports and protection of shareholders’ rights; financial indices and sustainability; and other risk factors. - Two binding criteria in LICs where information is limited: - An enterprise would normally be judged to pose a high fiscal risk if it carries out uncompensated quasi-fiscal activities or has negative operating balances. - An enterprise could be deemed to have a low fiscal risk even if information is mixed or incomplete, for example based on financial strength or track record. - In IMF-supported programs, exclusions are simplified: the technical memorandum of understanding would specify any exclusion of enterprises for the purpose of external debt limits; the same exclusions would be expected to apply in the DSA. ### Indicator checklist for exclusion of SOEs (criteria details) - Managerial independence - Pricing and employment policies: cost-covering price setting for non-tradables; average prices within 10 percent of the international benchmark for producers of tradables; tariff-setting regime compatible with long-term sustainability; employment policies independent of civil service laws except when justified. - Relations with the government - Absence of direct or indirect subsidies, on-lending by the government and/or explicit or implicit loan guarantees beyond those given to private enterprises. - Absence of quasi-fiscal activities such as uncompensated functions or absorbed costs not directly related to the SOE’s business objective. - Regulatory and tax regimes should subject SOE to same standards as private firms; absence of high frequency profit transfers from SOE to central budget. - Periodic audits - Periodic audits carried out and published by a reputable private accounting firm applying international standards; a major international firm should ideally audit large public enterprises. - Publication of comprehensive annual reports and protection of shareholders’ rights - Annual reports should include: i) audited balance sheets; ii) profit and loss statements; iii) off-balance sheet liabilities; iv) levels and changes in overall activity; v) employment and investment; vi) comparisons against other firms and international benchmarks. - Governance should protect minority shareholder rights. - Financial conditions and sustainability - Relevant indicators: i) market access, including comparable costs of debt and borrowing rates comparable to private firms without government guarantee; ii) less-than-full leveraging with debt-to-asset ratio comparable to industry average; iii) profitability defined as operating balance to assets ratio, or positive ratio higher than average cost of debt where no comparator; iv) records and evaluations of past investments demonstrating average rate of return at least equivalent to cost-benefit thresholds for new projects. - Absence of other risk factors - Consider vulnerabilities from: i) contingent liabilities relative to operating balance; ii) currency mismatches between main revenue sources and debt; iii) importance of the enterprise by size (debt service, employment, customer base, sales) and/or function (provision of essential inputs or services). 1 While ownership of at least 50 percent of shares guarantees control, such control may exist even when government owns a smaller proportion of total share capital. *Staff Guidance Note on the DSF for LICs (References and Annexes as provided in the source content).* ### Annex 4. Treatment of SDR Allocations ### Annex 4. Treatment of SDR Allocations ### Background and context - In 2009 the IMF proceeded with a general allocation of special drawing rights (SDRs) intended to meet a long-term global need for reserve assets by supplementing Fund member countries’ foreign exchange reserves. - In 2009 a special one-time allocation of SDR went into force. - The general and special allocations increased Fund members’ total allocation of SDRs from SDR 21.4 billion to SDR 204 billion (about US$316 billion). - The Executive Board asked that the debt sustainability implications of members’ use of SDRs be systematically assessed in DSAs. ### Why an SDR allocation matters for debt sustainability analysis (DSA) - An SDR allocation involves two elements: - an increase in the member’s allocation of SDRs (liabilities), and - a matching increase in its holdings of SDRs (assets). - Each member receives a costless, unconditional international reserve asset and faces symmetric interest mechanics: - Members receive interest on their holdings of SDRs and pay charges on their cumulative allocations of SDRs at the same rate—the SDR interest rate. - No interest is paid by members or earned by members where their SDR holdings equal their cumulative SDR allocations. - If a member's SDR holdings rise above its cumulative allocations, it earns interest on the excess. - If a member holds fewer SDRs than allocated, it pays interest on the shortfall. - Net interest payments on SDR shortfalls become a debt service obligation of the member to the IMF SDR Department. - These interest payments affect: - the magnitude of debt service, - the PV of PPG external debt, and - all of the debt burden indicators in the DSF. ### How to take an SDR allocation into account in DSAs - A country’s SDR allocation should not be included in the nominal stock of gross external debt. - The DSA should capture the impact of the SDR allocation by estimating the net interest payments that arise when SDR holdings fall below a member’s SDR allocation. - The DSA template provides a projection of the future path of the SDR interest rate, which serves as a basis for calculating: - interest paid to member countries on their SDR holdings, and - interest charged to members on their SDR allocation. - Required inputs into the DSA template: - a country’s current SDR allocation, - its total SDR holdings, and - any expected drawdown of SDR holdings over the projection period. - Once these inputs are entered, the template automatically calculates: - the PV of the future net interest payments, which is then included in the total PV of debt. ### Operational notes and data sources referenced - The SDR interest rate is projected using projected exchange rates and short-term deposit rates from WEO, as well as current SDR weights. - A country’s net cumulative allocation of SDRs, and its SDR holdings, can be found in Section III of each member’s page on IMF Members' Financial Data by Country. - The DSA template and automated calculation of PV of future net interest payments are central to incorporating SDR-related debt service into the DSF. *Source: Annex 4. Treatment of SDR Allocations* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2013/_110513.pdf_