Submission to the 2026 Review of IMF and World Bank Debt Sustainability Framework for Low Income Countries (LIC-DSF) - Public Consultation
Published: June 29, 2026
Jubilee USA Network is an alliance of more than 75 US organizations and 750 faith communities working
with 50 Jubilee global partners to build an economy that serves, protects and promotes the participation
of the most vulnerable.
We are glad to take this opportunity for offering feedback on proposals for the Review of the Bank-Fund
Debt Sustainability Framework for Low Income Countries (“LICs-DSF” or “the Framework”).
From the outset, we want to overall express our appreciation as the reform proposals go in the right
direction and show a serious attempt to take on board recommendations we provided throughout the
review process based on our research and observations. We are aware that, for some of our
recommendations, the historical data and analysis to be able to do them justice may not be in place, or
not yet, and we acknowledge the good faith effort to operationalize them in such imperfect conditions,
or start processes that can get there.
Defining debt sustainability
The background note reminds us of the IMF’s working definition of debt sustainability as “the ability of
the sovereign to meet its current and/or future financial obligations, while also preserving growth at a
satisfactory level and making adequate progress toward the authorities’ development goals.” (Para. 13)
With that in mind, we are concerned about the finding that the current LIC-DSF flagged a number of
“false alarms,” namely, “a high share of LICs rated at high risk, many of which have avoided debt distress
thus far.“ (Para. 9)
Developing countries are, on average, paying on debt service more than their combined spending on
health, education and social protection – a figure that is higher for low-income countries. The fact that
many “high-risk” countries have ultimately continued meeting their financial obligations is, in our view,
not representative of false alarms – certainly not if that is supposed to happen while countries make
adequate progress toward their development goals. It is a sign that in the current international financial
system they do not have access to predictable, speedy and smooth paths for the sufficient debt
restructuring they need. In fact, we would suggest that is the case for a number of countries that do not
merit more than a “moderate-risk” classification under the current DSF.
As put by economic journalist Martin Wolf, in the case of states the distinction between illiquidity and
insolvency is essentially a political one because it’s usually almost always possible, in some theoretical
sense, for a country to continue to service its debt if it sacrifices enough else.1
We are concerned that a bias to avoid flagging what the IMF now considers “false alarms,” may lead to
DSF reforms and their implementation underestimating debt problems and normalizing greater
sacrifices of that “something else” – which might well be spending to protect their most vulnerable,
their environment and their future generations.
In spite of that, we are overall cautiously optimistic that with the proposed reforms, the DSF for LICs has
the tools and the potential to be implemented in a way that remains faithful to the IMF’s own definition
of debt sustainability.
Debt-carrying capacity
We agree that the replacement of world growth with a country-specific measure of exposure to global
macro-financial conditions and adding a measure of output volatility in the Composite Indicator of Debt-
Carrying Capacity will improve the accuracy of estimates of debt-carrying capacity.
Arriving at the baseline
One gap our research unveiled is that, although evaluation of fiscal multipliers come within the realism
tools, that means they are applied after baseline scenarios have been projected. Such use does not
provide information on how relevant multipliers can account for the feedback effects of fiscal policy
within the baseline scenario. Amidst the multiple steps the proposed reforms address in the debt
sustainability exercise, we find it spends little attention on the baseline – other than a brief reference to
forecasts (para. 10). The long-term module (see further in this submission) might offer some correction
to this issue but it is, we understand, also on top of a given baseline scenario. Our research suggests that
more discussion of alternative baseline scenarios that show how the multiplier effects of different fiscal
choices may play out, would contribute to more sustainable debt profiles.
Distinguishing between risk of debt stress and risk of debt unsustainability
The proposed reforms would introduce the nuance of distinguishing between risk of debt stress and risk
of debt unsustainability, where debt stress spans a broad spectrum of intensity that, “in the extreme,
can render public debt unsustainable.”
While we agree with the distinction and its rationale, we wonder if the notion that risk of debt stress
may occur without risk of debt unsustainability may inadvertently lead to exclude debt restructurings
from consideration in cases where the assessment does not conclude that debt stress reaches the level
of unsustainability. We realize this is not the Fund’s position, as it states that “Eliminating or reducing
the likelihood of public debt stress can involve policy adjustments and economic reforms alone, or they
can be complemented with . . . debt relief through a debt restructuring.” (bolded is ours) Importantly,
the Fund’s own research has determined that debt restructurings are the most effective way to reduce
high debt levels (WEO of April 2023). The Fund is also on record encouraging pre-emptive debt
restructurings where possible.
To avoid confusion, however, we encourage diligent and proactive communications to clarify that a
country whose risk of debt stress does not reach unsustainability may still warrant and benefit from a
restructuring response.
The approach to domestic debt
We welcome the increased attention the proposed reforms pay to domestic debt vulnerabilities,
through the incorporation of two new models to estimate the risk of overall public debt stress and the
risk of public debt unsustainability, the additional tailored stress test on domestic financing and the
domestic debt risk module. In many LICs, domestic debt is a growing contributor to the rise in debt
service that erodes their capacity to finance human development and poverty reduction goals, even if
that was not the case at the inception of the DSF for LICs. The framework is right in taking into
consideration this evolution.
At the same time, we agree with maintaining the assessment of external debt stress separate, for the
reasons the background note states. Furthermore, our research found that the restructuring of external
debt bears different practical consequences than the restructuring of domestic debt, both in the short
and long term, and lumping them together may create inadvertent incentives that ignore such
differences. The distributional consequences of restructuring domestic debt may also be very different
on a case-by-case basis, as illustrated by recent restructurings.
We also agree with making the final rating of the risk of public debt stress at least as conservative as the
rating of external public debt stress (para. 47).
While the note says the DSF will consider external debt based on the residency of the creditor, we
caution to be mindful of the challenges in ascertaining who holds a particular claim at a given time,
especially in contexts of incomplete data, limited beneficial ownership disclosure and opportunities for
secondary trading inside and outside of public venues.
Realism tools
We welcome the enhancements proposed to realism tools and the introduction of complementary tools
to cover the projections for growth, exports, and revenues, and financing assumptions. With that said,
we encourage the use of tools in a way that helps align DSA findings with the complete definition of
debt sustainability underscored earlier. Realism tools can only be as good as the use practitioners make
of them.
Stress scenarios
We see as positive the retention of the existing stress tests and the new additions. In particular, we
welcome the enhancements and additions to tailored stress tests.
Regarding the natural disasters stress test, our research identified that the low coverage of countries
subject to it in the current DSF has been a problem. The announcement that “country-specific triggers
for the stress-test will be revised to reflect enhanced data availability and analytical advances,” is
promising, considering that the likelihood of natural disasters has increased since the last DSF review
and the analytical tools improved. However, where the thresholds are set to determine if a state is
vulnerable to natural disasters will impact coverage. We hope that the methodology will deliberately
aim at expanding coverage, considering that almost every LIC is, currently, exposed to some form of risk
arising from climate change.
Long-term module
We consider the introduction of a long-term module for assessing the public debt stress and
sustainability implications of policy and investment decisions associated with long-term challenges, an
extremely positive move, both in its development and its climate versions.
Too often, from the perspective of debt sustainability, funding for poverty reduction, climate adaptation
and crucial infrastructure have been purely regarded as expenses – neglecting that they may also
represent critical investments that boost growth, put it on a different frontier, and/or limit spending
needs in the future. The long-term modules offer a vehicle to bring in and model such investments
within the DSA exercise.
Coupled with transparency of replicable assumptions and multipliers, the normalization of their use
could contribute to an enhanced knowledge base, inside and outside the IMF, on the types and
modalities of public investment that support long-term growth and development.
However, there is a risk that, being a voluntary module, it may be sidelined as a non-priority item or one
that only few countries undertake.
Confidence flag on debt data
We very much welcome the proposed introduction of the “traffic-light” confidence flag on the
underlying debt data to inform judgment toward the final risk and sustainability assessments, and
improve their cross-country comparability. We trust that this will also introduce an additional incentive
for countries to progressively disclose more comprehensive and quality debt data, while acknowledging
that such disclosure is sometimes dependent on creditor-imposed constraints (e.g. requirements
creditors press in their contracts) and borrower’s capacity constraints. The latter factors also need to be
addressed.
Granularity of the high-risk rating
The proposal to elaborate on the size, timing, and type of breach of thresholds would add informative
value to the debt sustainability assessments.
To read more visit Jubilee USA and Friedrich Ebert Stiftung’s full joint publication on Debt Sustainability Assessments and Their Role in the Global Financial Architecture.
1 Wolf, Martin 2024. Sovereign Debt: Current Challenges and the Road Ahead, interview in IMF Live,
https://www.youtube.com/watch?v=0q16deKXp6
Read the original post on Jubilee USA’s website.
