Need for reforms in IMF’s Debt Sustainability Framework
The International Monetary Fund (IMF) and the World Bank designed the Debt Sustainability Framework (DSF), to assess and manage the debt sustainability of low-income countries (LICs). DSF is a key tool in the overall global financial architecture. It analyzes a country's indebtedness and its vulnerability to shocks through regular analysis of a country's present and projected (over the next 10 years) debt burden. The analysis involves conventional solvency analysis (Debt to GDP, Debt to Export, Debt service ratio, fiscal balance, etc.) and stress testing for potential crisis situations. The idea is to detect potential debt crises early and implement appropriate preventive actions. DSF, inter alia, guides— (i) borrowing decisions of LICs by assessing their financing needs and repaying abilities; (ii) LICs how to maintain a balance between their development goals and financial stability; (iii) the process of identifying countries un...