What Policy-Makers Should Watch for in the Review of the Low-Income Country Debt Sustainability Framework
The Low-Income Country Debt Sustainability Framework (LIC-DSF) review adapts the framework to a more complex debt landscape, but policy-makers need clearer signals on what the revised tool can and cannot do. It should be used mainly as a public debt sustainability analysis, complemented by separate external sustainability analysis focused on balance-of-payments and foreign-exchange risks.
Recommendations
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Use the revised LIC-DSF primarily as a public debt sustainability tool, focused on fiscal dynamics, public debt, gross financing needs, interest burdens, and refinancing risks.
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Pair the LIC-DSF with a dedicated external sustainability assessment focused on balance-of-payments pressures, foreign-exchange liquidity, reserves, exports, and external rollover risks.
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Use both public and external debt sustainability analyses for debt management and restructuring, but rely more heavily on the external assessment when evaluating new external borrowing decisions.
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Keep fiscal anchors simple and transparent, using operational stock-flow indicators rather than complex present-value metrics that are difficult to communicate and reproduce.
The current review of the LIC-DSF—a tool used to assess debt vulnerability in low-income countries—is both timely and necessary, as debt vulnerabilities among low-income countries remain persistently high and the debt landscape they face has changed significantly.
This policy brief does not seek to comment on every technical feature of the review. Instead, it asks a practical question: What should lower-income country policy-makers watch for in the revised framework, and how should they use it in practice?
Participating experts
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