The debt sustainability framework for low-income countries

Low-income countries (LICs) often struggle with debt problems, both domestic and external. And debt problems constrain their economic and social development. Recently, debt burdens have been reduced in many LICs through debt relief under two initiatives: the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative. Looking ahead, LICs will continue to need resources to finance their any development needs in a sustainable manner, without entering new episodes of debt distress. To help the analysis of reasonableness of the debt policies of LICs and to avert undue buildups of debt in the future, the IMF and the World Bank have developed a joint analytical framework called the Debt Sustainability Framework (DSF). This paper explains the analytical underpinnings of the DSF and suggests how it could e used more widely by countries, donors, and creditors.