Press Release: IMF Approves Unification of Discount Rates used in External Debt Analysis for Low-Income Countries

IMF News, October 18, 2013

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Canonical URL: Press Release: IMF Approves Unification of Discount Rates used in External Debt Analysis for Low-Income Countries

Press Release No. 13/408
October 18, 2013
On October 11, 2013, the Executive Board of the International Monetary Fund (IMF) approved the proposed Unification of Discount Rates Used in External Debt Analysis for Low-Income Countries.
The proposal was approved by the Executive Board of the World Bank on the same day.
The new unified discount rate will remain unchanged until the completion of the next review of the LIC DSF by the Executive Boards of the World Bank and the IMF, scheduled for 2015.

A single uniform discount rate will now be used for operational purposes in external debt analysis for low-income countries.
The new unified discount rate is set at 5 percent.
Analytical tools affected include joint Bank-Fund Debt Sustainability Analysis (DSAs) and the computation of loan concessionality.

Following an extended period of historically low interest rates in the advanced economies, the discount rate used in DSAs had become a weak measure for discounting cash flows over the longer term.
Estimates of the burden of debt service had been inflated, leading to an unjustifiable narrowing of the assessed borrowing space available to countries under the Debt Sustainability Framework for Low-Income Countries (LIC DSF).
The complex system of discount rates used for computing the grant element of individual loans gave rise to anomalies, while frequent updating of these rates created operational difficulties.
The unified rate at 5 percent is broadly aligned with the discount rate currently used for calculating the grant element of long-term U.S. dollar-denominated loans.