World Bank, IMF back debt framework changes for poor countries

The World Bank and International Monetary Fund said on Monday that both their executive boards had approved proposed reforms of their joint framework for evaluating the debt of low-income countries to reflect a more complex and riskier environment.

A joint review, the first since 2017, recommended changes in several areas, including better analysis of domestic debt and broadening the analysis of long-term development challenges, including climate change.

The reforms will work to improve the analysis of risks to debt sustainability by refining how countries’ debt-carrying capacity is measured, and introducing new tools to assess debt sustainability.

Finally, the World Bank and IMF will work to enhance the “realism tools” and stress tests used to ensure the consistency and accuracy of forecasts, while encouraging countries to improve debt data transparency, the World Bank said.

The IMF and World Bank use the debt sustainability framework to analyze and assess a country’s ability to take on new debt without jeopardizing its ability to service existing loans. Changes were recommended since many low-income countries have seen rising debt levels and a shift in financing sources to include more domestic and external borrowing on commercial terms.

The revised framework is expected to become operational in the second half of 2027, it added.

A review completed in July confirmed that the debt sustainability framework had worked well to identify debt distress episodes ahead of time and help countries make informed borrowing and lending decisions.

But it also identified several areas where the framework could be improved to account for new challenges at a time of elevated development needs and a sharp decline in official development assistance.