Analysis of the overall performance and key design features of the current LIC-DSF suggests that, while the framework remains fit for purpose, it can be improved to address the challenges facing low-income countries in a changing financing landscape.
- The LIC-DSF effectively identifies emerging debt risks before they materialize. At the same time, the evolving debt landscape and increased heterogeneity among LICs suggest a need to refine countries classifications by debt-carrying capacity, recalibrate the external stress model, and strengthen the assessment of overall public debt stress, including through a better integration of domestic debt risks.
- Judgment-based analysis continues to add important country-specific context, but would benefit from being further supported by data-driven tools to improve the consistency of both debt stress and sustainability assessments. .
- While near- and medium-term macro projections that feed into the analysis have generally been reliable, longer-term forecasts of exports and revenues show some optimism bias and there are still data gaps (such as for state-owned enterprise debt) that call for strengthening the focus on data quality, coverage and transparency and enhancing the realism tools and stress tests.
