The International Monetary Fund (IMF) and the World Bank have announced a revision of their method for assessing the debt of low-income countries. This change aims to look beyond mere repayment figures, considering factors such as domestic debt, business climate, infrastructure, and education. The reform, approved by the World Bank's Board of Directors on September 15, 2026, is set to take effect in the second half of 2027.
The new framework is designed to address the complex financial situations of countries like Chad, which is among the 70 countries eligible for IMF concessional financing. Of these, 35 are African nations. The current framework, in place since 2017, measures the risk of debt distress and informs borrowing, financing, and budget policy decisions. However, the economic landscape has evolved, with low-income countries increasingly relying on domestic debt and commercial financing.
The revised framework will include a module focused on domestic debt, examining the relationship between governments and banks. Another module will assess long-term needs, such as infrastructure, human capital, climate adaptation, and the impact of these investments on growth. This approach acknowledges that not all debt is equal; debt used for investments in infrastructure or human capital can have a different effect than debt used for covering expenses without generating new economic capacity.
A key aspect of the reform is to better distinguish between countries at risk of debt distress and those with unsustainable debt. The IMF and World Bank will enhance stress tests and require better documentation of debt data. For Chad, which is classified as a low-income country by the IMF, the latest debt sustainability analysis indicated a high risk of external debt distress but overall considered the debt sustainable.
The IMF notes that Chad, like other vulnerable countries, faces risks from shocks such as oil price fluctuations or delays in financing, which could quickly erode available margins for essential spending and investment. The reform emphasizes the importance of considering not just the amount of debt but also its cost, maturity, currency, and the revenues available for repayment.
The new framework is not a direct source of new financing or automatic interest rate reductions. Instead, it serves as an analytical tool to guide public policy and financing decisions. For low-income countries, the critical question is how to manage debt sustainably while securing the financing needed for development.
The implementation of this reform is expected to bring about a more nuanced understanding of debt sustainability in low-income countries. By taking into account a broader range of factors, the IMF and World Bank aim to support more informed decision-making that balances the need for financing with the risk of debt distress.
Key points
- The IMF and World Bank are updating their debt evaluation method to consider factors beyond repayment figures.
- The reform aims to better distinguish between countries at risk of debt distress and those with unsustainable debt.
- The new framework will take effect in the second half of 2027 and applies to 70 low-income countries, including 35 African nations.
