The World Bank said the 2017 review “introduces key reforms to keep up with the rapidly changing financing landscape facing LICs and further improve the DSF’s predictive ability. The DSF has been the key instrument to assess risks to debt sustainability in LIC since 2005.
“The reforms endorsed by the boards of the World Bank and the IMF, based on analysis and a consultative process, make the framework more comprehensive, transparent and simpler to use, all while enabling the DSF to better capture the risks of debt distress” said Jan Walliser, World Bank’s Vice President for Equitable Growth, Finance and Institutions.
Caribbean countries say they intend to use the World Bank and IMF meetings here this week to push for a review of the existing policies that prevent many of them from acquiring concessionary loans and other initiatives from lending agencies.
The World Bank and IMF collaborated in the development and rollout of the revised framework and while the core architecture of the framework remains the same, the World Bank said there are important reforms in the methodology.
It said the revised framework bases the assessment of countries’ risk carrying capacity on an expanded set of variables.
The World Bank said the adjustments to the methodology are designed to improve the framework’s accuracy in predicting debt crisis.
It said new tools are prepared to help shed light on the plausibility of underlying macroeconomic projections, and new tailored stress tests to address shocks and drivers of distress are provided to help better evaluate specific risks, relevant, for some countries.
Additionally, the Washington-based financial institution said the number of debt thresholds and standardized stress tests will be reduced.
It said staff judgement remains an important component in the framework, and the new Staff Guidance Note “will support consistent and more transparent application of judgement that would cover the diversity of country situations.”
The World Bank said the debt sustainability framework for LICs complements the provision of medium term debt management strategies by the World Bank and IMF.
It also complements the framework for debt sustainability analysis for market-access countries.
The World Bank said the revised DSF becomes effective as of July 1, 2018.
“The DSF plays a critical role in guiding borrowing and lending decisions: multilateral lenders including the International Development Association have linked their lending policies to the DSF results and the risk assessment derived by the DSF has informed the World Bank’s non-concessional borrowing policy (NCBP) and the IMF’s debt limits policy (DLP),” the statement said.
- Countries: Caribbean