World Bank, IMF Boards Approve Overhaul of Debt Framework for Poor Nations
Executive boards of the World Bank and IMF have approved reforms to their joint debt sustainability framework for low-income countries, with the revised system set to become operational in the second half of 2027.
The executive boards of the World Bank and the International Monetary Fund have approved proposed reforms to their joint framework for assessing the debt of low-income countries, the two institutions said on Monday, in a move aimed at reflecting a more complex and riskier borrowing environment.
The changes follow a joint review — the first since 2017 — which recommended improvements in several areas. These include sharper analysis of domestic debt and a broader examination of long-term development challenges such as climate change.
Under the reforms, the two institutions will refine how a country's debt-carrying capacity is measured and introduce new tools for assessing debt sustainability. They will also strengthen the "realism tools" and stress tests used to check the consistency and accuracy of forecasts, while pushing countries to improve the transparency of their debt data.
The debt sustainability framework is the tool the World Bank and IMF use to gauge whether a country can take on fresh borrowing without undermining its ability to repay existing loans. The review was prompted by rising debt levels across many low-income countries and a shift in financing sources, with more borrowing now taking place on commercial terms, both domestically and externally.
A review completed in July found that the framework had performed well in flagging debt distress episodes ahead of time and in helping countries make informed borrowing and lending decisions. It nevertheless identified areas for improvement, given elevated development needs and a sharp fall in official development assistance.
The revised framework is expected to become operational in the second half of 2027.