On September 15, 2026, the Executive Board of the World Bank approved the proposed reforms to the joint IMF-World Bank Debt Sustainability Framework for Low-Income Countries.
Since the last review of the framework in 2017, the debt landscape has become more complex and riskier for low-income countries at a time of elevated development needs.
The review confirmed that the Framework has continued to perform well, successfully identifying debt distress episodes ahead of time and helping country authorities and partners make informed borrowing and lending decisions. The review also identified several areas where the framework can be improved, adapting it to the evolving circumstances facing low-income countries.
The proposed reforms introduce significant upgrades in four key areas:
First, the reforms strengthen the analysis of domestic debt, which has become an increasingly critical source of vulnerability in many low-income countries. A new domestic debt module will provide a more systematic assessment of domestic debt risks, including those arising from the sovereign-bank nexus.
Second, the reforms broaden the analysis of long-term development challenges, including those stemming from climate adaptation and other development needs. A new long-term development module will help countries assess how much fiscal space may be available to support investments in infrastructure, human capital, climate adaptation, and other development priorities. It will also provide a more structured basis for considering the longer-term growth and fiscal implications of these investments in debt sustainability assessments. These investments are critical to creating the jobs that low-income countries need to drive growth and reduce poverty.
Third, the reforms will bring greater rigor to the analysis of risks to debt sustainability by better distinguishing debt stress risk from debt unsustainability. This is done by refining the measurement of countries’ debt-carrying capacity, recalibrating and expanding the scope of the thresholds, and introducing new tools to assess debt sustainability.
Fourth, the reforms enhance the realism tools and stress tests that support the consistency and accuracy of forecasts. They refine and streamline the criteria for debt coverage and incentivize countries to improve debt data transparency.
This review benefited from extensive internal and external consultations with the World Bank and IMF Executive Boards, representatives of creditor and borrower countries, development partners, academia, civil society, and the private sector.
The framework is expected to become operational in the second half of 2027, allowing time to finalize the revised operational guidance and undertake extensive capacity building for users of the framework.
