Review of the Bank-Fund Debt Sustainability Framework for Low Income Countries - Exploring LIC-DSF Performance and Scope for Improvements

Jul 19, 2026

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This background paper provides technical information supporting the main review of the Bank-Fund Debt Sustainability Framework for Low-Income Countries (LIC-DSF). It is structured into four chapters that examine the LIC-DSF econometric model’s design and implementation, evaluate debt-carrying capacity as a parsimonious way to capture cross-country heterogeneity, assess forecast accuracy, and analyze debt perimeter issues. The paper also includes supporting tables, figures, and illustrative fiscal risk materialization examples.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages37

Reading Time1 h 33 min

Introduction

Technical aspects of econometric model and LIC-DSF implementation

Debt-carrying capacity as tool to capture country heterogeneity

Forecast accuracy

Debt perimeter issues

Boxes

Examples of materialization of fiscal risks from SOEs

Figures

PROBIT performance and distress episode identification

Sensitivity of distress probability cut-offs

Sensitivity of model calibration

Debt-carrying capacity distributions and user forecast errors

Public Disclosure Authorized Public Disclosure Authorized INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND REVIEW OF THE BANK-FUND DEBT SUSTAINABILITY FRAMEWORK FOR LOW INCOME COUNTRIES—EXPLORING LIC-DSF PERFORMANCE AND SCOPE FOR IMPROVEMENTS BACKGROUND PAPER November 25, 2024 Prepared by the staffs of the World Bank Group and the International Monetary Fund1 Approved by Manuela Francisco (WB) and Guillaume Chabert (IMF) 1 Prepared by a team from the IMF’s Strategy, Policy, and Review Department, led by Plamen Iossifov and coordinated by Karim Foda, consisting of Tamon Asonuma, Christopher Dielmann, Yukun Ding, João Capella-Ramos, Miguel Ricaurte, Moustapha Mbohou Mama, Jean-Claude Nachega, Sanan Mirzayev, Jasmin Sin, and Igor Zuccardi, under the overall guidance of Allison Holland (all SPR); and a team from the World Bank’s Economic Policy Department, led by Luca Bandiera, consisting of Anna Corcuera, Mariela Caycho Arce, Wissam Harake, Juan Hernandez, Sebastian Horn, Muazu Ibrahim, David Mihalyi, Mellany Pintado Vasquez, Madi Sarsenbayev, Tessy Vasquez Baos, and Clemens Graf Von Luckner under the overall guidance of Frederico Gil Sander. Data analytics and visualization support was provided by Chen Chen, Zhuo Chen, Zhengyuan Xia, and Arthur Xie. Administrative assistance was provided by Eiman Afshar and Claudia Isern. EXECUTIVE SUMMARY This Background Paper provides technical information to accompany the main paper on Review of the Bank-Fund Debt Sustainability Framework for Low Income Countries⎯Exploring LICDSF Performance and Scope for Improvements. This material, presented in four chapters, covers the following issues: • Analysis of technical aspects of the LIC-DSF econometric model and implementation; • Analysis of the debt-carrying capacity as tool to parsimoniously capture country heterogeneity; • Analysis of forecast accuracy; • Analysis of debt perimeter issues. TABLE OF CONTENTS I. INTRODUCTION ________________________________________________________________________________ 4 II. II. TECHNICAL ASPECTS OF ECONOMETRIC MODEL AND LIC-DSF IMPLEMENTATION ______________ 4 III. DEBT-CARRYING CAPACITY AS TOOL TO CAPTURE COUNTRY HETEROGENEITY____________________ 13 IV. FORECAST ACCURACY__________________________________________________________________________20 V. DEBT PERIMETER ISSUES_______________________________________________________________________31 BOXES 1. Examples of Materialization of Fiscal Risks from SOEs ______________________________________35 FIGURES 1. Individual PROBITs Performance under Threshold Approach and Contribution to Identifying Distress and Non-Distress Episodes in 2017 Review Dataset_______________________________________________________ 8 2. Sensitivity of Distress Probability Cut-offs under Threshold Approach to Definition of NonDistress Episodes ________________________________________________________________________________ 10 3. Sensitivity of Model Calibration under Threshold Approach to Revisions of 2017 Review Dataset__________________________________________________________________________________________________ 12 4. Distribution of CI scores across LIC-DSF countries, 2018 vs. 2024 __________________________________ 15 5. LIC-DSF Users with DCC Downgrades Led by Changes in Global Growth: Contributions to CI-Score Changes__________________________________________________________________________________________________ 17 6. Frontier LICs: Sovereign Bond Spreads by DCC at Issuance, 2012-24________________________________ 18 7. DCC’s of LIC-DSF Countries by CI Score and Credit Ratings_________________________________________ 18 8. LIC DSAs: Domestic Debt-to-GDP Ratio by Debt-Carrying Capacity _________________________________ 19 9. LIC-DSF Users: Medium-Term Forecast Errors for External and Overall Debt to GDP_________________ 21 10. LIC-DSF Users: Analysis of Forecast Errors of Gross Financing Needs ____

FAQs

What topics does this background paper cover regarding the LIC-DSF?

It covers the technical aspects of the LIC-DSF econometric model and implementation, the role of debt-carrying capacity in capturing country heterogeneity, forecast accuracy, and debt perimeter issues.

How does the paper characterize debt-carrying capacity in the LIC-DSF?

It treats debt-carrying capacity as a tool to parsimoniously capture country heterogeneity, enabling differentiated assessment across LICs.

What kinds of results are used to support the analysis in the paper?

The paper relies on chapter-level analyses supported by figures and examples, including model performance under threshold approaches, sensitivity tests, calibration effects, and forecast error analysis.

Jul 19, 2026

Upload by Quinn