IMF-WB supplement note on debt sustainability framework for low income countries (2024)

https://www.imf.org/en/Publications/Policy-Papers/Issues/2024/08/05/Sup…

This Supplement provides additional guidance to IMF and World Bank staff on the implementation of the Bank-Fund Debt Sustainability Framework for Low Income Countries (LIC-DSF) approved in 2017. It complements the 2018 Bank-Fund Guidance Note on the LIC-DSF on 3 aspects:

• Climate change. This supplement clarifies when climate change risks and climate investments and policies have to be explicitly taken into account in the debt sustainability analysis (DSA). It discusses the general modalities of their incorporation in the central projections in the baseline or in alternative scenarios and in their expected volatility. It also provides guidance on how to account for climate-related innovative debt instruments in DSAs. 

   

• Domestic public debt vulnerabilities. This supplement provides more granular guidance on how to account for domestic public debt vulnerabilities into the risk and sustainability assessments of overall public debt, through a risk-based qualitative analysis centred around the dynamics of public debt stock and debt service, and the consistency of the domestic public borrowing plan with maintaining macroeconomic and financial stability.

   

• Use of the LIC-DSF in debt restructuring situations. This supplement provides further guidance on: (i) setting of debt restructuring targets where a debt restructuring is undertaken in the context of a Fund-supported program; (ii) the modalities of DSA scenario analysis to help the authorities assess the relative merits of different restructuring proposals, with special attention to cases where domestic public debt or state-contingent debt instruments (SCDIs) are involved; and (iii) on the presentation of the DSA analysis at different stages of the restructuring process.