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International Monetary Fund
Low-income countries (LICs) face significant challenges in meeting their development objectives while at the same time ensuring that their external debt remains sustainable. In April 2005, the Executive Boards of the International Monetary Fund (IMF) and the International Development Association (IDA) endorsed the Debt Sustainability Framework (DSF), a tool developed jointly by IMF and World Bank staff to conduct public and external debt sustainability analysis in low-income countries. The DSF aims to help guide the borrowing decisions of LICs, provide guidance for creditors’ lending and grant allocation decisions, and improve World Bank and IMF assessments and policy advice.
International Monetary Fund

objectives are to help guide the borrowing decisions of LICs, provide guidance for creditors’ lending and grant allocation decisions, and inform IMF and World Bank analysis and policy advice. Although the terms “DSF” and “DSA” are sometimes used interchangeably, they are in fact distinct: the DSF is the framework within which a DSA is produced for a particular country. 5. The DSF is also distinct from the framework used to assess debt sustainability in market-access countries (MACs). The DSF was developed jointly by IMF and World Bank staff and applies only to LICs. The

International Monetary Fund
Introduced in 2005, the joint IMF-World Bank Debt Sustainability Framework (DSF) is a standardized framework for conducting public and external debt sustainability analysis (DSA) in low-income countries (LICs). It aims to help guide the borrowing decisions of LICs, provide guidance for creditors‘ lending and grant allocation decisions, and improve World Bank and IMF assessments and policy advice. The framework was previously reviewed in 2006 and 2009. This paper provides a comprehensive review of the framework to assess whether it remains adequate in light of changing circumstances in LICs. It reviews the DSF‘s performance to date, presents the results of recent analytical work by IMF and World Banks staffs, and discusses a number of areas in which the framework could be improved.
International Monetary Fund. Strategy, Policy, & and Review Department
Low-income countries (LICs) face significant challenges in meeting their Sustainable Development Goals (SDGs) while at the same time ensuring that their external debt remains sustainable. In April 2005, the Executive Boards of the International Monetary Fund (IMF) and the International Development Association (IDA) approved the introduction of the Debt Sustainability Framework (DSF), a tool developed jointly by IMF and World Bank staff to conduct public and external debt sustainability analysis in low-income countries. The DSF has since been serving to help guide the borrowing decisions of LICs, provide guidance for creditors’ lending and grant allocation decisions, and improve World Bank and IMF assessments and policy advice. The latest review of the framework was approved by the Executive Boards in September 2017. This introduced reforms to ensure that the DSF remains appropriate for the rapidly changing financing landscape facing LICs and to further improve insights into debt vulnerabilities. This note provides operational and technical guidance on the implementation of the reformed framework.
International Monetary Fund

I. Introduction 1. A formal framework for conducting public and external debt sustainability analysis (DSA) in low-income countries (LICs) was put in place in 2005 ( Box 1 ). 1 , 2 The main objectives of the debt sustainability framework (DSF) are to: Guide the borrowing decisions of LICs in a way that matches their financing needs with their current and prospective repayment ability, taking into account each country’s circumstances; Provide guidance for creditors’ lending and grant allocation decisions to ensure that resources are provided to LICs

Mr. Christian H. Beddies, Ms. Marie-Helene Le Manchec, and Ms. Bergljot B Barkbu

change. With the menu of financing options expanding and its composition changing, LICs face an array of challenges the DSF can help address. The DSF can help guide the borrowing decisions of LICs in a way that matches their financing needs with their current and prospective repayment ability, provide guidance for creditors' lending and grant-allocation decisions to ensure that resources are provided to LICs on terms that are consistent with both progress toward their development goals and long-term debt sustainability, improve World Bank and IMF assessments and policy

Mr. Christian H. Beddies, Ms. Marie-Helene Le Manchec, and Ms. Bergljot B Barkbu

-related vulnerabilities and guiding the design of policies to help prevent the reemergence of debt distress. The DSF's design and objectives thus differ from those of the DSAs that are carried out under the HIPC Initiative in several important ways. 6 The main objectives of the DSF are to Guide the borrowing decisions of LICs in a way that matches their financing needs with their current and prospective repayment ability, taking into account each country's circumstances; Provide guidance for creditors' lending and grant-allocation decisions to ensure that resources are provided

International Monetary Fund. Strategy, Policy, & and Review Department

Low-income countries (LICs) face significant challenges in meeting their Sustainable Development Goals (SDGs) while at the same time ensuring that their external debt remains sustainable. In April 2005, the Executive Boards of the International Monetary Fund (IMF) and the International Development Association (IDA) approved the introduction of the Debt Sustainability Framework (DSF), a tool developed jointly by IMF and World Bank staff to conduct public and external debt sustainability analysis in low-income countries. The DSF has since been serving to help guide the borrowing decisions of LICs, provide guidance for creditors’ lending and grant allocation decisions, and improve World Bank and IMF assessments and policy advice. The latest review of the framework was approved by the Executive Boards in September 2017. This introduced reforms to ensure that the DSF remains appropriate for the rapidly changing financing landscape facing LICs and to further improve insights into debt vulnerabilities. This note provides operational and technical guidance on the implementation of the reformed framework.

Mr. Christian H. Beddies, Ms. Marie-Helene Le Manchec, and Ms. Bergljot B Barkbu

Abstract

Borrowing can help achieve economic and social objectives, and debt is its consequence. Many low-income countries (LICs) require substantial external financing to reach their development objectives, and stepped-up investment in infrastructure is critical to achieve sustained growth and development. External debt financing can help in this regard by channeling resources to projects where the rate of return of the debt-financed investment is at least sufficient to service the debt incurred.

Mr. Christian H. Beddies, Ms. Marie-Helene Le Manchec, and Ms. Bergljot B Barkbu

Abstract

When governments face resource constraints, they often resort to borrowing to finance their expenditure plans. When outlays exceed revenues, a government has two basic options: eliminate the deficit by cutting expenditures or raising more revenues, or finance it through new (net) borrowing, which increases the stock of public debt. Governments may borrow by issuing securities, such as government bonds and bills, or through loans from domestic or foreign institutions (Box 2.1).