The International Monetary Fund (IMF) and World Bank have revised their debt sustainability framework for low-income countries, introducing a new domestic debt risk module and thresholds for overall public debt stress. This move aims to provide a more comprehensive assessment of debt risks in countries where domestic borrowing has become increasingly important. The revised framework will help policymakers balance financing for growth and development with the need to keep debt vulnerabilities under control.
The IMF Executive Board reviewed the joint IMF-World Bank Debt Sustainability Framework for Low-Income Countries (LIC-DSF) on September 9, 2026, approving reforms designed to make debt risk assessments more responsive to the changing financing landscape. The new framework places greater emphasis on domestic debt vulnerabilities, overall public debt, and the quality of debt data. This shift comes as debt conditions in low-income countries have become more complex and riskier since the last major review in 2017.
Debt levels have risen in many low-income countries, while financing sources have become more diverse, with a growing role for domestic borrowing and external borrowing on commercial terms. The shift towards greater domestic borrowing has become more pronounced since the COVID-19 pandemic, as rising debt-service costs and diminished access to external financing have encouraged governments to rely more heavily on domestic sources of funding. This increased use of domestic borrowing is raising new concerns about debt vulnerabilities.
The revised framework will refine the measurement of countries' debt-carrying capacity and recalibrate and expand the thresholds used to identify debt stress. The framework will distinguish more clearly between countries facing some risk of debt stress and those whose debt is assessed as unsustainable. A new model of debt sustainability and a mechanical risk signal, supported by complementary debt sustainability indicators, will also be introduced.
Another major change is the introduction of a long-term module that will help countries assess the implications of development and climate-adaptation investments for debt sustainability. This module is intended to help policymakers determine how much fiscal space may be available for such investments while containing debt vulnerabilities over the longer term. The review also seeks to make debt assessments more objective by strengthening realism tools and stress tests used to assess the accuracy of economic forecasts.
The IMF and World Bank will refine debt-coverage criteria and encourage countries to improve the quality, breadth, transparency, and reliability of public debt data. Particular emphasis is being placed on comprehensive debt coverage, including liabilities of state-owned enterprises. The revised framework will introduce a confidence flag on debt data and baseline adjustments to address gaps in debt reporting and encourage stronger debt-data management.
The revised framework is expected to become operational for country documents submitted to the IMF Executive Board after the 2027 Board summer recess. The changes reflect a broader shift in the debt landscape, where low-income countries face higher borrowing costs, reduced external financing, and greater reliance on domestic markets. The IMF said the revised framework will provide a clearer and more forward-looking assessment of these risks.
Key points
- The IMF and World Bank have revised their debt sustainability framework to better assess debt risks in low-income countries.
- The revised framework introduces a new domestic debt risk module and thresholds for overall public debt stress.
- The changes aim to help policymakers balance financing for growth and development with the need to keep debt vulnerabilities under control.
