Market access

IMF Executive Board reviews IMF Debt Sustainability Framework for Market Access Countries


IMF Executive Board reviews IMF Debt Sustainability Framework for Market Access Countries

February 3, 2021

Washington DC:
On January 14, 2021, the Executive Board of the International Monetary Fund (IMF) reviewed the IMF’s Debt Sustainability Framework for Market Access Countries (MAC DSA). The review found that it was possible to improve the ability of the MAC DSA framework to identify sovereign stress risk and better align it with the IMF lending framework, by replacing the current approach with a new methodology. .

The MAC DSA plays a key role in the Fund’s essential monitoring and lending functions. In surveillance, the framework helps to identify the vulnerability of a member to sovereign stress to keep the member away from such stress. In IMF-supported programs, which often take place after stress has already developed, the DSA helps determine whether sovereign stress can be addressed through a combination of IMF financing and economic reforms, or whether measures such as debt restructuring are necessary to deliver results in the medium term. long-term debt sustainability. The framework is also used to develop IMF conditionality and inform about the need for debt relief in debt restructuring operations undertaken in the context of IMF-supported programs.

Since its introduction in 2002, this framework has been revised in 2003, 2005 and 2011-2013. The 2011-2013 review introduced key features, including a risk-based approach by distinguishing between high and low surveillance countries, standardization of drafting and publication requirements, realism tools to guard against economic projections optimistic, a heat map summarizing debt vulnerabilities and debt charts to give an idea of ​​the uncertainty surrounding the projected path of the debt-to-GDP ratio.

Close examination over the past two and a half years has revealed possibilities for further improvements, in order to predict sovereign stress with greater accuracy. The new framework includes broader and more consistent debt coverage, a longer projection horizon, new multi-horizon tools based on superior analytical methods that take into account the structural characteristics of countries, and increased transparency in assessments. result, including the exercise of judgment. In addition, the new tools support probabilistic debt sustainability assessments, as required by the IMF’s lending framework.

The framework is expected to be operationalized in the last quarter of 2021 / first quarter of 2022. This will be preceded by the completion of the guidance note and accompanying template, and deep engagement with the country’s authorities and other external stakeholders. The transition from the old to the new framework will be managed carefully to ensure consistency.

Board assessment

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Directors welcomed the comprehensive and far-reaching review of the Debt Sustainability Framework for Market Access Countries (MAC DSA), which will be renamed the “Sovereign Risk and Debt Sustainability Framework for Market Access Countries. countries with access to the market ”(MAC SRDSF) in order to enter all of its Analysis. Amid growing pandemic-related vulnerabilities, they broadly supported proposed reforms aimed at improving the framework’s ability to predict sovereign tensions, enhance transparency and reporting of its results, and align it with the framework. Three-zone sustainability assessment required under the framework access exception. Directors recognized that the framework would require some additional technical adjustments before the staff guidance note was prepared and implemented.

Directors supported the continued application of the existing definition of debt sustainability, and most agreed that general government debt, defined according to the GFSM 2014 classification, should be the institutional cover by default. A few directors suggested that extending debt coverage to GG be phased in, as two-fifths of emerging market countries currently only report data for central government. Directors welcomed the incorporation of liquid public sector financial assets as a mitigating factor, and most directors supported the risk-based approach whereby central bank liabilities and / or contingent liabilities of public enterprises should be included in the debt scope. However, a few directors advised incorporating a wider range of public sector assets and embracing the concepts of net public debt more broadly in the framework. Directors stressed that capacity development support would be needed to bring national data coverage to adequate levels. A few directors preferred to maintain the current 5-year time horizon in some cases, given the great uncertainties surrounding public debt projections.

Directors welcomed the expanded realism toolbox for baseline projections and sovereign risk assessment tools at three horizons: short, medium and long. They supported the use of the proposed new tools, with slight adjustments, to produce the probabilistic debt sustainability assessments required in IMF-supported programs and to assess the consistency of restructuring targets with restoring sustainability in the country. cases of debt restructuring. A number of Directors stressed the need to give due consideration to the impact of climate change on sovereign risk and debt sustainability. A few directors questioned expanding the existing realism toolkit to cover exchange rate analysis, especially for index-linked regimes. A number of administrators expressed concern about the use of third-party perceptions-based indicators to construct the institutional quality variable used in the short- and medium-term models. In addition, these administrators requested that sufficient room for judgment be allowed and, as a cross-check, to compare results using alternative indicators of institutional quality that are not based on perceptions.

Directors agreed that a sovereign risk analysis should generally be prepared in program and supervisory contexts. In the context of a program, rating reports should contain the full range of medium and long-term (but not short-term) sovereign stress risk results, as well as an overall risk assessment. In the oversight and precautionary arrangement cases, most directors approved full disclosure of sovereign risk analysis to the board, but limited disclosure (omitting the signal and short-term risk assessment) to the public for a period of 12 months, during which time full public disclosure would be reviewed based on experience gained with the new framework. A number of directors have expressed concern about the unintended consequences of potential market sensitivities to full disclosure of sovereign risk. A number of other directors have expressed support for immediate disclosure of the sovereign risk analysis to the public. Directors noted that the implementation of the limited disclosure options would require a targeted change in the transparency policy, which would be proposed on a time lapse basis.

Directors agreed that sustainability assessments should be required for agreements involving GRA resources (including precautionary agreements) as well as for PCI. While most directors agreed that sustainability assessments should be optional in oversight cases, a few directors preferred to prepare a sustainability assessment in oversight cases with high risk of sovereign stress, with the results disclosed. to the board but not to the public, although a few other directors would promote public disclosure even in such cases. Regarding the program cases, various points of view were expressed. Some managers preferred to maintain the current practice whereby a three-zone assessment is included in staff reports in exceptional access cases, but not in normal access cases. A few Directors suggested full disclosure (to Council and the public) of the three-zone assessments in normal and exceptional access cases. Ultimately, administrators could agree to disclosure to the Board of tri-zone assessments in cases of normal and exceptional access, and to the public only in cases of exceptional access, with experience being assessed upon completion. a period of 12 months.

In the context of the precautionary arrangements, Directors agreed that sovereign risk assessments would be based on the baseline scenario, while sustainability assessments would be based on both the baseline and, where appropriate, on the baseline scenario. an unfavorable scenario (full draw). They agreed that the latter would be appropriate in cases of exceptional access (except FCL cases), if the shocks triggering a drawing are not correctly captured by the tools in the medium term, or when the review services have doubts about the realism of the baseline scenario that cannot be resolved. through discussions with the country team, although a few Directors noted that the proper use of the new realism tools should resolve such doubts.

While most admins supported the proposed timeline, with a carefully planned rollout slated for Q4 2021 or Q1 2022, some admins preferred a more accelerated timeline, and a few others felt that the proposed timeline could be ambitious. In this context, the transition from the old to the new framework needs to be carefully managed to ensure consistency. Directors looked forward to the preparation of a guidance note and new models underpinning the new framework, along with early engagement with a subset of country teams to test the new tools in parallel with the current framework. They encouraged the provision of appropriate capacity development support and the maintenance of close engagement with the Council during the implementation of the framework, as well as an effective communications strategy with member country authorities and parties. external stakeholders during this process.



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At the end of the discussion, the Managing Director, in his capacity as Chairman of the Board, summarizes the points of view of the Executive Directors, and this summary is sent to the country’s authorities. An explanation of all the qualifiers used in the abstracts can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.

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