IMF and World Bank approve new debt framework for poor countries

The International Monetary Fund and World Bank approved changes to their joint debt sustainability framework for low-income countries. The reforms add more systematic analysis of domestic debt and a long-term development module covering fiscal space for priorities including infrastructure, human capital and climate adaptation. They retain the framework's 5% discount rate. Implementation is planned for the second half of 2027.

The boards completed the first comprehensive review of the framework since 2017. The system is used to assess a country's risk of debt distress and to inform financing decisions by the two institutions. Allison Holland, deputy director in the IMF's African Department, said about 14% of low-income countries were in debt distress and another 33% at high risk.

BROADER DEBT RISK ANALYSIS

A new domestic debt module will assess these risks more systematically, including the sovereign-bank nexus, as financing for many low-income countries has shifted towards domestic borrowing and external borrowing on commercial terms. The reforms also refine how debt-carrying capacity is measured, recalibrate and broaden risk thresholds and introduce new debt sustainability tools.

The institutions said the reforms should improve forecasts, debt data transparency and the calibration of public-debt thresholds. Reuters reported that the executive boards of both institutions had approved the reforms.

IMPLEMENTATION REMAINS AHEAD

The assessments inform debt limits in IMF programmes, World Bank financing terms and debt-restructuring discussions. The discount rate, kept at 5% after a parallel review, is used to calculate the present value of debt.

Country assessments will continue under the existing framework while staff finalise the guidance note, analysis template and training for the transition. The next concrete milestone is implementation in the second half of 2027, when new sustainability analyses are expected to begin using the revised methodology.