The executive boards of the World Bank and the International Monetary Fund have approved a reform of their joint debt sustainability assessment framework for low-income countries. The changes are aimed at better capturing increasingly complex risks in the global economy.
According to Reuters, this is the first review of the framework since 2017. The updated approach will place stronger emphasis on domestic debt analysis and take broader account of long-term development challenges, including climate change. At the same time, it does not amount to a full overhaul of the system.
The World Bank and the IMF say the reform should improve assessments of countries’ ability to service their debt and allow for a clearer distinction between states facing debt distress risks and those whose debt burdens are already unsustainable.
The institutions also plan to refine their analytical tools and stress tests to improve forecast accuracy. They are also urging countries to strengthen the quality and transparency of debt statistics. The discount rate used in the assessments has been kept at 5%.
Ellison Holland, deputy director of the IMF’s African Department, said the purpose of the changes is to help countries identify vulnerabilities earlier and more accurately and make better informed financing and economic policy decisions.
She noted that recent shocks have erased the improvement in debt conditions seen since 2021. At present, around 14% of low-income countries are in debt distress, while another 33% face a high risk of it. Among emerging market countries, about 23% are in the high-risk zone for sovereign debt stress.
The updated framework could also be taken into account in discussions on Senegal’s debt restructuring. The IMF said the country’s debt sustainability would for now continue to be assessed under the current methodology while factoring in the implications of the transition to the new system.
