Factsheet: IMF-World Bank Debt Sustainability Framework for Low-Income Countries
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Bibliographic details
- Published: January 8, 2023
Purpose and role of the LIC-DSF
- The Debt Sustainability Framework for Low-Income Countries (LIC-DSF) is developed jointly by the IMF and the World Bank to analyze public debt stress and sustainability in countries eligible for concessional financing from either institution.
- Since April 2005, the LIC-DSF has been the cornerstone of the international community’s assessment of risks to debt sustainability in LICs, with important operational implications for stakeholders.
- Primary objectives:
- Support IMF and World Bank policy advice and lending decisions.
- Guide fiscal policies and public debt management in LICs, balancing financing for growth and development with debt vulnerability control.
- Provide early warning signals on the buildup of risks of public debt stress and unsustainability to help borrowers and creditors take appropriate action and avoid debt distress and restructurings.
- Use by stakeholders:
- Official creditors, other multilateral development banks, and donors use the framework to guide lending and grant-allocation to LICs.
- The LIC-DSF is used to determine the size of the restructuring envelope required to restore public debt sustainability in cases of sovereign debt restructurings.
- Low-income countries are encouraged to use the DSF or a similar framework; creditors are encouraged to incorporate debt sustainability assessments into their lending decisions.
Key features and methodology
- Time horizon and projections:
- Requires regular debt sustainability analyses of a country’s projected debt burden over the next 10 years and its vulnerability to economic and policy shocks.
- Analytical inputs:
- Analysis is informed by a macro framework with baseline projections of key macroeconomic variables and financing assumptions used to forecast debt dynamics.
- Realism tools ensure credibility and internal consistency of the baseline scenario.
- Stress tests gauge sensitivity of forecasts to changes in macroeconomic assumptions.
- Debt-carrying capacity and classification:
- Capacity to carry debt depends on the strength of policies and institutions, and the dynamism and resilience of economies.
- Countries are classified by Debt Carrying Capacity into three groups: Weak, Medium, and Strong, based on a Composite Indicator.
- Debt-burden indicators and thresholds:
- Analysis relies on debt-burden indicators comparing stock of debt and debt service to measures of repayment capacity such as GDP, exports, or fiscal revenue.
- Forecasts of debt-burden indicators in baseline and shock scenarios are compared to DCC-specific thresholds derived from estimated early-warning models of past crises.
- Countries with stronger debt-carrying capacity are assigned higher thresholds.
- Risk signalling and final ratings:
- A mechanical risk signal is generated when a debt-burden indicator breaches its threshold in the baseline or shock scenarios for more than one year at any time in the first 10 years of projections.
- Final risk ratings combine information from mechanical risk signals and structured application of judgment to reflect country-specific factors; sustainability assessments are at present only judgment based.
Recent updates and rollout
- The LIC-DSF has been updated periodically, most recently in September 2026.
- Outcome from the 2026 LIC-DSF Review is noted; the full roll-out of the revised LIC-DSF will occur in the summer of 2027, following:
- Preparation of the new Guidance Note and Template.
- Training of staff.
- Outreach to country authorities and other stakeholders.
- Interim practice:
- Debt sustainability analyses (DSAs) are being prepared under the current LIC-DSF framework while taking into account implications of the transition to the revised LIC-DSF framework.
Communications and outreach
- A video explains what debt sustainability is and why it is important.
- An interactive guide on Debt Sustainability Framework for low-income countries is available for download.
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