The World Bank and International Monetary Fund have proposed changes to the Low-Income Country Debt Sustainability Framework (LIC-DSF), which evaluates debt risks in poorer nations. While some revisions are positive, the updates fail to address key flaws that particularly impact African countries.
The new version distinguishes between public debt stress and sustainability, adds a section for domestic debt risks, and refines “high risk” ratings by time horizon and vulnerability type. These changes aim to improve accuracy but do not resolve a fundamental problem: the framework tracks liabilities better than it assesses how borrowing can generate future repayment capacity.
A debt sustainability system should determine whether a country can service its obligations without harming development. Four major issues remain unresolved.
The current system divides countries into two groups: low-income nations, evaluated under the LIC-DSF, and market-access countries, which use a separate system. This division, established in 2005, assumed low-income countries relied mostly on concessional loans, while wealthier nations borrowed from capital markets. That assumption no longer holds.
Most African sovereigns now combine concessional lending, non-concessional bilateral finance, domestic bonds, regional development bank borrowing and varying degrees of market access. Kenya illustrates the problem. It graduated to lower-middle-income status around 2014 and has since issued multiple eurobonds. Yet it is still assessed under the LIC-DSF. Its financing structure is mixed; the analytical architecture remains binary.
The division creates misleading signals. Of the 70 countries on the IMF’s September 2025 LIC-DSF list, 39 are African. A framework whose caseload is so concentrated in one continent cannot treat African financing realities as an edge case. In 2019, before Covid-19, 64 countries globally had public debt above 60% of GDP; only a third were African. Yet all 12 countries in that group classified by the IMF and World Bank as high-risk or in debt distress were African.
The solution should go beyond technical alignment between the two systems. The review should set out a path towards one universal sovereign DSA framework: a common analytical spine with differentiated modules based on actual financing structures and risk characteristics, not income classification.
Since 2005, more than one-third of LIC-DSF users have received a “high risk” rating in a given year. Only around 5% of those cases were followed by actual debt distress within the next two years. For Africa, 55% were rated high risk and 15% w
This does not mean the framework fails to predict defaults. Early-warning systems for rare events always produce false positives. The issue lies in market reactions. When the LIC-DSF flags a country as high risk, creditors often treat it as an imminent default. Borrowing costs increase, maturities shorten, and access becomes harder. A tool intended to highlight vulnerability can worsen it.
The market-access framework, updated in 2021, uses probability-weighted assessments instead of fixed ratings. The LIC-DSF should adopt a similar approach. The IMF and World Bank must also study how “high risk” classifications affect borrowing costs and for how long.
Debt sustainability frameworks influence investor behavior, donor decisions, and domestic policy. When a system errs on the side of caution, it can create self-fulfilling crises—especially when the assessed countries have little influence over its design.
The reforms include a variable linking borrowing costs to the share of external debt in total public debt. This seems logical but builds on an existing indicator tied to the World Bank’s Country Policy and Institutional Assessment (CPIA).
This creates a risk of circularity. If borrowing costs are already high due to market mispricing or regional risk premia, feeding those costs back into the framework can reinforce distortions. A weaker score lowers debt thresholds, increasing the likelihood of a “high risk” rating—and potentially raising borrowing costs further.
At minimum, borrowing-cost variables should account for fundamentals, regional benchmarks, and pricing anomalies. Both frameworks should reduce reliance on subjective measures and prioritize observable indicators of sovereign capacity.
The LIC-DSF closely monitors liabilities but poorly evaluates what borrowing finances: productive assets, resilience, and future income streams that could improve repayment capacity. Infrastructure projects—energy systems, transport corridors, climate-resilient assets—can boost productivity, exports, and public revenue. The liability appears immediately in the framework; the productive return is delayed or excluded.
The same problem applies to natural capital. Two countries with similar mineral wealth may have different repayment prospects depending on who controls the asset and captures its value. Chad and Tanzania demonstrate this range: natural capital can generate royalties under foreign control or provide the state with equity and stronger domestic revenue.
The framework must trace how debt is used. What asset or capability did it create? What productive activity follows? What income, exports, or foreign exchange does that generate? How much of that value strengthens repayment capacity?
This is not an argument for treating all infrastructure or resource-backed borrowing as beneficial. It calls for distinguishing debt that merely adds liabilities from debt that builds the capacity to service them.
The LIC-DSF was developed by IMF and World Bank staff, with low-income countries consulted but not leading the process. The original design reflected an imbalance: more conservative thresholds reduced debt distress risk but implied a greater need for grants instead of borrowing. Without firm donor commitments to provide those grants, the cost of conservatism fell on the countries themselves.
Representation in framework design matters. The proposed changes are an improvement but should be seen as temporary. The real goal is a universal sovereign debt sustainability framework—one built around actual financing structures, rigorous assessment of vulnerability and repayment capacity, and meaningful decision-making power for the affected countries.
The updates offer small improvements. They do not fix the system’s main flaw: it was designed to measure risk, not to help countries manage it.
