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GUIDANCE NOTE ON IMPLEMENTING THE DEBT LIMITS POLICY IN FUND SUPPORTED PROGRAMS

May 2021

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  • The Guidance Note prepared by IMF and World Bank staff and completed on April 29, 2021.

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GUIDANCE NOTE ON IMPLEMENTING THE DEBT LIMITS POLICY IN FUND-SUPPORTED PROGRAMS

April 29, 2021

EXECUTIVE SUMMARY

The Debt Limits Policy (DLP) establishes the framework for using quantitative conditionality to address debt vulnerabilities in IMF-supported programs. In October 2020, the Executive Board approved reforms to the DLP which will enter into effect on June 30, 2021. The risk-based approach to setting debt conditionality informed by Debt Sustainability Analyses under the previous DLP approved in 2014 is maintained. The reforms aim to provide countries with more financing flexibility in practice while still adequately containing debt vulnerabilities through appropriate safeguards.

This note provides operational and technical guidance related to the implementation of the DLP, including the operationalization of the approved reforms. In particular, it outlines the core principles underpinning the DLP, including when debt conditionality in IMF-supported programs is warranted and how to account for country-specific circumstances in the design of debt limits. The note also describes the process of setting and implementing debt conditionality, including: (i) identifying debt vulnerabilities to inform the focus of debt conditionality; (ii) designing debt conditionality; and (iii) implementing debt conditionality through the review cycle.

The Guidance Note is intended for use by both IMF staff and country officials. In this regard, in addition to the guidance presented in the main body, the note also contains several annexes that cover definitional, technical, and operational issues arising in the determination and implementation of public debt limits.

Approved By

Seán Nolan

Prepared by a staff team led by Deirdre Daly and comprising of Dilek Sevinc, Modeste Some, and Tim Willems (all SPR), Rodrigo Garcia-Verdu (now MCD), and Keiichi Nakatani and Bahrom Shukurov (now WHD), under the overall guidance of Craig Beaumont (SPR). Administrative assistance was provided by Claudia Isern (SPR).

Contents

  • Abbreviations and Acronyms

  • SECTION I. WHAT IS THE DEBT LIMITS POLICY?

  • SECTION II. PRINCIPLES OF DEBT CONDITIONALLY

  • A. When are Public Debt Limits Appropriate?

  • B. Key Differences Across Countries in Debt Conditionality Specification

  • C. Overview of Designing Debt Conditionality

  • SECTION III. IDENTIFYING DEBT VULNERABILITIES

  • A. Determining Whether There is a Comprehensive Picture of Debt

  • B. Steps to Improve Debt Information if Needed

  • C. Requirement for a Debt Holder Profile

  • D. Understanding Complementarity with Fiscal Conditionality

  • E. Utilizing Debt Sustainability Analyses to Assess Debt Vulnerabilities

  • SECTION IV. DEBT CONDITIONALITY DESIGN

  • A. Tailoring Conditionality to Debt Vulnerabilities

  • B. Countries that Normally Rely on Concessional Financing

  • C. Countries that do not Normally Rely on Concessional Financing

  • D. Other Operational Considerations

  • SECTION V. IMPLEMENTING DEBT LIMITS

  • A. Monitoring Debt Limits

  • B. Assessing Concessionary

  • C. Exceptions to NCB Limits

  • D. Coordination with the World Bank

  • BOXES

  • 1 Identifying Countries with Significant Access to International Financial Markets

  • 2. How to Identify Debt Data Gaps in the DSA?

  • 3. Handling Confidential Information Relating to Debt

  • 4. Example Figures for LIC-DSF

  • 5. How to Determine the Level of Quantitative Debt Limit

  • 6. Example Figures for SRDSF (Formerly MAC DSA)

  • 7. Ensuring Quality in Signals to Determine When Projects Integral to Authorities’ Development Program—Specific Considerations

  • FIGURES

  • 1. Debt Limits Policy and Other Policies and Tools

  • 2. Designing Debt Limits Flow Chart

  • TABLES

  • 1. Template for Table on Debt Holder Profile

  • 2. Illustrative Forms of Debt Conditionality in Response to Different Vulnerabilities

  • 3. Debt Limits Policy Conditionality Requirements

  • 4. Signals for NCB Project Exceptions—Core Options

  • ANNEXES

  • I. Overview of 2020 Debt Limits Policy Reforms

  • II. Program Documentation

  • III. Borrowing Plan

  • IV. Technical Considerations in Setting and Monitoring Debt Limits

Abbreviations and Acronyms

CB

Concessional Borrowing

CD

Capacity Development

DSSI

Debt Service Suspension Initiative

DLP

Debt Limits Policy

DSA

Debt Sustainability Analysis

DSEP

Debt Sustainability Enhancement Program

IT

Indicative Target

LIC

Low-Income Country

MAC DSA

Market-Access Country Debt Sustainability Analysis

MDB

Multilateral Development Bank

MTDS

Medium-term Debt Strategy

NCB

Non-Concessional Borrowing

ODA

Official Development Assistance

OECD

Organization for Economic Cooperation and Development

PC

Performance Criterion

PPP

Public-Private Partnership

PV

Present Value

SDFP

Sustainable Development Finance Policy

SPV

Special Purpose Vehicle

SOE

State Owned Enterprise

SRDSF

Sovereign Risk and Debt Sustainability Framework (successor to MAC DSA)

TMU

Technical Memorandum of Understanding

Guidance Note On Implementing The Debt Limits Policy In Fund Supported Programs
Author: International Monetary Fund. Strategy, Policy, & Review Department