Public Debt Limits in IMF-Supported Programs

Last update: June 2021

The Debt Limits Policy (DLP) establishes the framework for using quantitative conditionality to address the debt vulnerabilities of countries with IMF-supported programs. In October 2020, the Executive Board approved reforms of the DLP, which aim to provide countries with more financing flexibility in practice while still adequately containing debt vulnerabilities through appropriate safeguards (Reform of the Policy on Public Debt Limits in IMF-Supported Programs). The reforms entered into effect on June 30, 2021.

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Core Principles and Conditionality Requirements

Under the DLP, the use of debt conditionality in IMF-supported programs is justified when there are merits to using debt targets instead of, or as a complement to, fiscal conditionality or when a country has significant debt vulnerabilities that cannot be tackled by fiscal conditionality alone. Debt conditionality design should reflect the nature and extent of debt vulnerabilities, while taking account of country-specific circumstances (particularly financing). As such, the results of a country’s Debt Sustainability Analysis and its reliance on concessional external financing are key factors driving differences in DLP conditionality requirements across countries.

The appropriate form of debt conditionality differs between countries that normally rely on concessional external financing (countries that use the Debt Sustainability Framework for Low-Income Countries) and those that do not (countries that use the Debt Sustainability Analysis for Market Access Countries). Table 1 summarizes conditionality requirements under the DLP based on risks identified in the DSA and the country’s financing circumstances.

 Debt Limits Policy Conditionality Requirements

Countries that normally rely on concessional   financing (LIC-DSF)

DSA    Risk Rating

No significant access to international financial markets1

Significant access to international financial markets1


No debt conditionality except targeted limits if needed


Quantitative Performance Criterion (QPC) on the present value (PV) of external borrowing (in most cases)2

QPC on PV of external borrowing (but alternatives should be utilized if better targeted to vulnerabilities)3

High/in debt distress

QPC on zero non concessional borrowing (with exceptions for critical projects/debt management)4

Indicative Target (IT) or QPC on PV of external borrowing2

QPC on PV of external borrowing (but alternatives should be utilized if better targeted to vulnerabilities)3

Countries that do not normally rely on concessional financing (SRDSF/MAC DSA)

Debt limits if vulnerabilities are not addressed by fiscal conditionality

1/Whether a country has significant access to international financial markets depends on whether it has a significant amount of international financial market borrowing and a demonstrated capacity to manage significant levels of market borrowing
2/Where the country team determines that there is weak capacity to monitor the incurring of all forms of debt, nominal NCB limits for moderate risk countries (or a memo item on concessional borrowing for high risk countries) would apply, supported by a more focused capacity building effort.
3/Limits can be set on the basis of the currency of debt denomination if accurate high-frequency data on external borrowing is not available because of foreign investors moving in and out of domestic instruments, as well as between domestic-currency and foreign-currency bond issues.
4/NCB exceptions may be allowed where financing is needed for a project integral to the authorities’ development program for which concessional financing is not available; or (b) non-concessional borrowing is used for debt management operations that improve the overall public debt profile.

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Debt Data Disclosure

Establishing a comprehensive view of public debt vulnerabilities is an essential first step in designing debt conditionality. The 2020 DLP Reforms incorporates steps aimed at enhanced debt data disclosure. These include the introduction an explicit expectation that critical debt data disclosure gaps should be addressed upfront in IMF-supported programs and a requirement to include a table on the debt holder profile in all IMF program staff reports.

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The degree of concessionality of a loan is measured by its "grant element." The grant element is defined as the difference between the loan's nominal value (face value) and the sum of the discounted future debt-service payments to be made by the borrower (present value), expressed as a percentage of the loan's face value.

Whenever the interest rate charged for a loan is lower than the discount rate, the present value of the debt is smaller than its face value, with the difference reflecting the (positive) grant element of the loan. The discount rate used to calculate the loan's present value is a key assumption in the calculation of the grant element, and IMF uses a unified discount rate of 5 percent per annum.

Typically, a loan is considered to be concessional if its grant element is at least equal to 35 percent. Under this approach, the Fund may assess on a case-specific basis whether an envisaged combination of financing instruments can be treated as a package for purposes of meeting concessionality requirements.

As part of the 2020 DLP reforms, some non-standard types of financing are automatically treated as non-concessional, with a zero-grant element. These include blended financing arrangements that include the provision of a financially significant amount of grants in kind (e.g., grants provided in the form of equipment or machinery for a project) and financing involving unrelated collateral (e.g., general budget borrowing collateralized by earmarking of commodity receipts).

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Concessionality Calculator and PV Tool

The concessionality calculator posted on this website facilitates the calculation of a grant element of an individual debt instrument. It takes into account commissions and fees as well as alternative standard repayment profiles. It can also calculate the grant element for a nonconcessional loan that is packaged with a grant.

The Present Value (PV) Monitoring Tool is an Excel based file that has been developed to set and monitor debt targets. It allows users to calculate the present value and grant element for multiple loans at the same time. It provides summary statistics for the entire debt portfolio, including total present value, weighted average grant element, and other useful statistics such as interest rate range and variable interest loan exposure. The PV Monitoring Tool also includes sheets that allow users to calculate the present value and grant element of unconventional loans, such as instruments issued by the Islamic Development Bank. For background on such instruments, please see the Fund's Islamic Finance page.

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Grant Element Calculator

The unified discount rate to calculate the grant element of individual loans used by the IMF and World Bank is currently set at 5 percent. For information on the methodology, please see Unification of Discount Rates Used in External Debt Analysis for Low-Income Countries.

PV Monitoring tool: