IMF, World Bank decide new improvements to debt sustainability framework in poorer countries

The World Bank and the International Monetary Fund (IMF) are introducing improvements to their joint Debt Sustainability Framework (DSF) developed to assess borrowing levels in low-income countries after both institutions undertook a comprehensive review on the programme.

In a statement issued March 28, 2012, both institutions said they have determined that some enhancements are necessary to ensure that the framework adapts to changing circumstances in borrowing countries.

The enhancements decided by the two institutions, according to the statement are “Strengthened analysis of total public debt and fiscal vulnerabilities; Adjustment of thresholds on external public debt; Introduction of an additional risk rating to reflect the overall risk of debt distress; Better capturing of investment-growth linkages; and Making the framework easier for countries to use.”

The DSF is used by borrowing countries, lenders, and donors to assess how much debt is sustainable and to balance it against a country’s development needs.

The World Bank relies on the DSF to determine the share of grants and loans in its assistance to low-income countries. Other lenders and donors similarly look to the DSF to inform their financing decisions.

Under the framework, the IMF and World Bank produce a joint debt sustainability analysis (DSA) for all low-income countries, generally on an annual basis. Each DSA yields a rating denoting the risk of external public debt distress.

By Ekow Quandzie