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The Debt Sustainability Framework to Become More Flexible for Low-Income Countries

The Debt Sustainability Framework to Become More Flexible for Low-Income Countries

The World Bank has released the joint paper, “A Review of Some Aspects of the Low-Income Country Debt Sustainability Framework,” which was discussed by the Executive Boards of both the Bank and the International Monetary Fund (IMF) at the end of August. 

The paper adds to the flexibility of the Debt Sustainability Framework (DSF) for Low Income Countries (LICs) --a tool developed by the Bank and the Fund to guide borrowing and lending decisions-- so that resources are devoted toward achieving the MDGs without creating the buildup of unsustainable debt.

Specifically, the paper recommends that:

  • The debt of state-owned enterprises (SOEs) be excluded from indebtedness indicators when the SOEs can borrow without a public guarantee and their operations pose only limited fiscal risks for the government.
  • Bank and IMF staff undertake more in depth analysis to better assess the impact of public investment on growth. The paper calls on Bank and IMF staff to undertake country specific analyses to ensure that DSAs do not lead to excessively conservative borrowing policies during recessions or growth slowdowns.
  • The role of remittances be better recognized in Debt Sustainability Analyses, especially where they are large, including in the determination of debt-related risk ratings.
    In making these adjustments, the Bank will continue to take into account the views of the country authorities.

Following the endorsement of the paper by the Boards of the Bank and the Fund, there will be a detailed revision of the "DSF Staff Guidance Note" to make its recommendations operational. The World Bank will also consider adjustments to the implementation of IDA’s Non Concessional Borrowing Policy (NCBP) to ensure consistency with the new IMF guidelines on debt limits, announced on September 9, 2009  An update on the implementation of IDA’s NCBP is expected to be presented to the Board before the end of 2009.

Last updated: 2009-09-15

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