2026 LIC-DSF Review FAQ
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Overview
- Last Updated: September 21, 2026
- The Debt Sustainability Framework for Low-Income Countries (LIC-DSF) is a framework 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.
- The 2026 LIC-DSF Review aims at future-proofing the framework and ensuring that it remains fit for purpose as debt risks, financing patterns, and analytical tools continue to evolve.
- Since its launch in 2005, the LIC-DSF has undergone several joint IMF-WB reviews to adapt it to the evolving debt risk landscape and keep it up to date with analytical advances.
Key objectives and scope of the 2026 Review
- Support IMF and World Bank policy advice and lending decisions and help guide fiscal policies and public debt management in LICs.
- Balance the need to finance growth and development with keeping debt vulnerabilities in check.
- Improve the framework without a wholesale redesign—build on the strength of the current framework and introduce targeted upgrades.
Main findings from the review
- The LIC-DSF remains fit for purpose but can be improved to address challenges in a changing financing landscape.
- The LIC-DSF effectively identifies emerging debt risks before they materialize.
- Evolving debt landscape and increased heterogeneity among LICs suggest the need to:
- Refine country classifications by debt-carrying capacity.
- Recalibrate the external stress model.
- Strengthen the assessment of overall public debt stress, including better integration of domestic debt risks.
- Judgment-based analysis adds important country-specific context but would benefit from being further supported by data-driven tools to improve consistency of debt stress and sustainability assessments.
- Near- and medium-term macro projections have generally been reliable; longer-term forecasts of exports and revenues show some optimism bias.
- Data gaps (such as for state-owned enterprise debt) call for strengthening focus on data quality, coverage and transparency, and enhancing realism tools and stress tests.
- Since the last reform of the LIC-DSF in 2017, the debt landscape has become riskier and more complex for LICs at a time of elevated development needs, falling official development assistance flows and rising borrowing costs.
- In many LICs:
- Debt levels have risen.
- Financing sources have become more diverse, with an increasing role for domestic and external borrowing on commercial terms.
- Since the COVID-19 pandemic, LICs have faced rising debt service costs and diminished access to external financing, adding impetus to a shift toward greater reliance on domestic financing.
- Borrowing patterns have become more heterogeneous across LICs; frontier and other relatively wealthier LICs have decoupled from their peers to more closely resemble emerging markets (EMs), making greater use of borrowing on commercial terms.
Proposed reforms and enhancements
- Sharper debt sustainability assessments:
- Bring greater rigor to the analysis of debt risks.
- Strengthen the distinction between countries facing debt risks and those with unsustainable debt.
- Introduce new tools to assess debt sustainability and provide a more granular explanation of high-risk ratings, allowing clearer differentiation of debt vulnerabilities according to type of risks and their timeframes.
- A broader view of debt vulnerabilities:
- Systematically analyze domestic debt vulnerabilities.
- Introduce thresholds for overall public debt stress.
- Allow countries to assess how much fiscal space is available to support investment in development and climate adaptation efforts while containing debt vulnerabilities.
- More objective and data-driven analysis:
- Further develop realism tools and stress tests to support consistency and accuracy of forecasts.
- Incentivize countries to improve the quality, breadth, and transparency of public debt data used in the DSAs.
Expected benefits and analytical outcomes
- Provide countries with a clearer, more comprehensive, and more forward-looking view of their debt risks, helping identify vulnerabilities earlier and make better-informed financing and policy choices.
- Better distinguish manageable financing pressures from situations requiring more fundamental action, allowing policymakers to address emerging pressures before they turn into crises.
- Deliver a more complete picture of debt risks, including those arising from domestic debt and long-term challenges stemming from climate adaptation and developmental needs.
- Produce more accurate, policy-relevant and country-specific assessments through:
- Greater granularity of risk ratings.
- Stronger focus on comprehensive, transparent, and reliable public debt data.
- Enhanced analytical tools.
Implementation timeline and transitional arrangements
- The revised LIC-DSF is expected to become fully operational for country documents issued for Board consideration after the 2027 Board summer recess.
- Ahead of implementation, IMF and World Bank staffs will finalize and publish the new Guidance Note and DSA template and provide training to country teams and authorities.
- During the transition period:
- The current LIC-DSF will remain in use.
- Transitional arrangements will support a smooth move to the new framework.
- In practice, DSAs will be prepared under the current LIC-DSF framework while taking into account the implications of the transition to the revised LIC-DSF framework.
Role and uses of the LIC-DSF
- The LIC-DSF plays a central role in IMF and World Bank assessments of public debt stress and sustainability in countries eligible for concessional financing from either institution.
- Official creditors, other multilateral development banks and donors use the framework to guide lending and grant-allocation to LICs to help ensure resources are provided on terms consistent with long-term debt sustainability and development progress.
- The LIC-DSF provides key inputs for macroeconomic analyses and policy advice, informing fiscal policies and prudent public debt management in LICs.
- Debt sustainability analyses provide early warning signals on the buildup of risks of public debt stress and unsustainability, helping borrowers and creditors take appropriate action and avoid debt distress and restructurings.
- In cases of sovereign debt restructurings, the joint LIC-DSF is used to determine the size of the restructuring envelope required to restore public debt sustainability.
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