By The International Monetary Fund’s Executive Board completed a review of the joint IMF-World Bank Debt Sustainability Framework for Low-Income Countries (LIC-DSF) on September 9, 2026, proposing upgrades to how debt risks are assessed, the Fund said Monday.
The review, the first since 2017, found the framework remains “fit-for-purpose” but identified several areas for improvement as debt dynamics in low-income countries have grown more complex.
Debt levels in low-income countries have risen since the last review, the IMF said, while financing sources have diversified, with domestic and external borrowing on commercial terms playing a bigger role.
The IMF said the LIC-DSF has continued to perform well since its introduction in 2005, successfully identifying debt distress episodes ahead of time and helping country authorities and partners make informed borrowing and lending decisions.
The debt sustainability framework has been reviewed periodically — in 2006, 2009, 2012 and 2017 — to keep pace with an evolving debt risk landscape and advances in analytical tools, according to the IMF.
The proposed changes build on the current framework and introduce upgrades in three areas, the IMF said.
First, the reforms aim to bring greater rigor to the analysis of debt sustainability risks by better differentiating between countries facing solvency risk and those whose debts are unsustainable. This will be achieved by refining the measurement of countries’ debt-carrying capacity and recalibrating and expanding the thresholds used to signal debt distress, along with new tools to assess sustainability.
Second, the framework will broaden its lens on debt risks by more systematically analyzing domestic debt vulnerabilities, and by better reflecting long-term challenges including those stemming from climate adaptation and development needs.
The revised framework will allow countries to assess how much fiscal space might be available to support needed investment in development and climate adaptation efforts, while accounting for debt vulnerabilities over the long term, the IMF said.
Third, the review enhances the objectivity of debt sustainability assessments by further developing realism tools and stress tests that support the consistency and accuracy of forecasts.
It also refines and streamlines the criteria for debt coverage, and incentivizes countries to improve the quality, breadth, transparency and reliability of public debt data used in the assessments.
A concurrent review of the harmonized discount rate applied in the LIC-DSF and the IMF’s Debt Limits Policy concluded the rate would remain unchanged at five percent, the Fund said.
The IMF said the review drew on extensive internal and external consultations conducted over its course, including with representatives of creditor and borrower countries, other development partners, academia, civil society and the private sector.
The framework has been a cornerstone of the international community’s assessment of debt sustainability risks in low-income countries since 2005, carrying important operational implications for stakeholders including governments, multilateral lenders and creditors, the IMF said.
The updated debt sustainability framework is expected to become operational in the second half of 2027, the IMF said. The timeline is intended to allow completion of associated operational guidance for staff, as well as training of country teams and authorities, before implementation begins.
The IMF and World Bank jointly use the LIC-DSF to gauge the risk of debt distress in low-income countries and to guide borrowing and lending decisions by governments, creditors and development partners.
