On September 9, 2026, the Executive Board of the International Monetary Fund (IMF) reviewed the joint IMF-World Bank Debt Sustainability Framework for Low-Income Countries (LIC-DSF).

Since the last such review in 2017, the debt environment has become more complex and riskier for low-income countries at a time of elevated development and climate-related needs. In many LICs, debt levels have risen and financing sources have become more diverse, with an increasing role for domestic and external borrowing on commercial terms.

The review confirms that the LIC-DSF has continued to perform well, successfully identifying debt distress episodes ahead of time, and helping country authorities and partners make informed borrowing and lending decisions. It remains “fit-for-purpose”. However, the review also identifies several areas where the framework can be further improved, including potential “future proofing” measures to adapt the framework to the evolving circumstances facing LICs.

The proposals build on the strength of the current framework and introduce upgrades in three key areas.

First, the reforms will bring greater rigor to the analysis of risks to debt sustainability by better differentiating between countries facing some risk of debt stress and countries whose debts are assessed as unsustainable. This is done by refining the measurement of countries’ debt-carrying capacity and recalibrating and expanding the scope of the thresholds that signal debt stress, and introducing new tools to assess debt sustainability.

Second, it broadens the lens on debt risks, by more systematically analyzing domestic debt vulnerabilities, as well as better reflecting long-term challenges, including those stemming from climate adaptation and developmental needs. The revised framework will allow countries to better assess how much fiscal space might be available to support needed investment in development and climate adaptation efforts, while containing debt vulnerabilities over the long term, providing a key tool to guide decision-making around these issues.

Third, it enhances the objectivity of the assessment by further developing the realism tools and stress tests that support the consistency and accuracy of forecasts. It 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 debt sustainability analyses (DSAs).

Since its introduction in 2005, the LIC-DSF has been the cornerstone of the international community’s assessment of risks to debt sustainability in LICs, with important operational implications for stakeholders. The framework was previously reviewed in 2006, 2009, 2012, and 2017 to adapt it to the evolving debt risk landscape and keep it up to date with analytical advances.

As part of the latest review, extensive internal and external consultations were carried out over the course of the review with the IMF and World Bank Executive Boards and other stakeholders, including representatives of creditor and borrower countries, other development partners, academia, civil society, and the private sector.

The concurrent review of the harmonized discount rate used in the application of the LIC-DSF and the IMF Debt Limits Policy also concluded. The discount rate remains unchanged at five percent.

The framework is expected to become operational in the second half of 2027. This will allow for completion of the associated operational guidance to staff on how to implement the new framework, as well as training of country teams and authorities.

Executive Board Assessment[1]

Executive Directors welcomed the comprehensive review of the Debt Sustainability Framework for Low‑Income Countries (LIC‑DSF) and appreciated the extensive consultations with the Executive Board and other external stakeholders. They underscored the key role played by the LIC‑DSF in the analysis of public debt stress and sustainability to support Fund policy advice and lending decisions and help guide fiscal policies and public debt management in LICs. Directors broadly agreed that the proposed reforms would help ensure the LIC‑DSF remains fit for purpose in the face of heightened debt vulnerabilities and greater heterogeneity across LICs. However, noting the increased complexity of the proposed framework, they underscored the importance of a clear Guidance Note (GN), careful communication, targeted capacity development, and continued engagement with stakeholders to support its smooth adoption.

Directors welcomed the proposed refinement of the LIC‑DSF terminology to better differentiate debt stress from unsustainable debt. Directors agreed that for country documents prepared under the new LIC‑DSF framework, references to the term “debt distress” in IMF policies will be understood as referring to the term “debt stress”, except when used in the phrase “in debt distress”. Directors agreed to keep the harmonized discount rate unchanged at five percent for use in the IMF Debt Limits Policy and the LIC‑DSF.

Directors supported the enhancements to the core framework, including refining the measurement of countries’ debt‑carrying capacity, recalibrating and streamlining the external stress thresholds and introducing new ones for overall public debt stress, and providing for a more country‑specific approach to inform judgment toward the final risk assessments in specific cases, to better capture heterogeneity across LICs.

Directors welcomed the new model of debt sustainability and associated mechanical risk signal, together with the complementary auxiliary debt sustainability indicators. Some Directors recalled the need to preserve the central role of external debt burden indicators, especially in restructuring cases. While a few Directors advocated for the full publication of model results in the interest of transparency, most Directors agreed to temporarily restrict the publication of the probability cut‑offs used to generate the mechanical risk signal of unsustainable public debt, as well as the mechanical risk signals in individual DSAs, to allow time to gain experience with the new methodology and with managing its communication. They endorsed adding the stand‑alone staff note that would be used to share information with the Board on the mechanical signal and how the auxiliary debt sustainability indicators inform the final sustainability assessment to the “negative list” under the Fund’s Transparency Policy. Directors encouraged staff to clarify the criteria and timeline for revisiting the proposed non‑publication regime as experience with the new model progresses, with some Directors suggesting that this should be done alongside the next MAC‑SRDSF review.

Directors welcomed the introduction of the new domestic debt risk and long‑term modules, which will improve the structured application of judgment in the final stress and sustainability assessments, and the proposed enhancements to the granularity of risk ratings. They underscored the importance of enhanced diagnostics on domestic debt given its increased importance in many LICs. Directors concurred that the new long‑term module will provide a useful complementary tool to assess, as relevant, the implications of policy and investment decisions associated with development and other long‑term challenges, including those stemming from climate adaptation, for public debt stress and debt sustainability. They further underscored the important role of the new modules and the enhanced granularity of risk ratings in better capturing increased heterogeneity across LICs.

Directors generally highlighted the importance of a comprehensive coverage of debt, including for SOEs, for a credible LIC‑DSF. They endorsed the proposed enhancements to the realism tools and stress tests to further improve forecast accuracy, and the introduction of a confidence flag on debt data and baseline adjustments to mitigate the risk of debt data gaps to support and incentivize comprehensiveness, transparency, and reliability of public debt data. They noted however that these efforts should not unduly penalize countries that are making good‑faith efforts to improve debt data coverage.

Directors reaffirmed the role of structured and transparent use of judgment in the final debt stress and sustainability assessments. They underscored the importance of even‑handedness in its application and requested staff to clarify in the new GN how judgment would be exercised to account for country‑specific considerations, along with other implementation issues.

Directors supported the proposed transitional modalities for the implementation of the new framework. They agreed that a transition period is needed to allow time for the new GN and DSA template to be published, as well as training of country teams and authorities. They noted that the new framework is expected to be implemented for country documents issued for Board consideration after the 2027 Board summer recess. Directors emphasized the importance of clear communication on the implications of changes to a country’s debt‑carrying capacity, with a few noting the need to monitor the implications of the refinement of the measurement of countries’ debt‑carrying capacity, including stemming from the new output volatility indicator, during the transition period. Going forward, staff should continue to monitor and keep the Board informed on the implementation of the new framework.

[1] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.