World Bank Backs Debt Framework Reforms as Risks Rise for Low-Income Countries

Borrowing within a country has become an increasingly important source of vulnerability, making the relationship between government finances and domestic lenders a central concern.

Governments in low-income countries face difficult choices over how to finance roads, schools, healthcare and climate protection without taking on debts they cannot manage. The World Bank's Executive Board approved proposed reforms to the joint IMF–World Bank Debt Sustainability Framework for Low-Income Countries on September 15, 2026, supporting changes designed to give governments and lenders a clearer picture of borrowing risks and the financial room available for development. The approval comes as countries navigate a more complicated and risky debt landscape than at the framework's previous review in 2017, with pressing investment needs adding to the pressure on public finances. The decision was announced in a World Bank statement.

The review found that the existing framework continues to work well, identifying episodes of debt distress in advance and helping national authorities and their partners make informed borrowing and lending decisions. Its findings support improvements across four areas: domestic debt, long-term development needs, the assessment of debt risks, and the tools used to check forecasts and debt information. For countries trying to balance immediate financial pressures with investments that could strengthen their economies, these changes could help make the consequences of borrowing decisions easier to understand.

Domestic Borrowing Gets Closer Attention

Borrowing within a country has become an increasingly important source of vulnerability, making the relationship between government finances and domestic lenders a central concern. A new domestic debt module will introduce a more systematic assessment of these risks, including the sovereign-bank nexus, the financial links through which difficulties affecting governments and banks can reinforce each other. Giving these connections greater attention will help the framework capture vulnerabilities that matter for both public finances and the wider financial system, providing a fuller basis for decisions about how governments fund their spending.

Development Needs Enter the Longer-Term Picture

A new long-term development module will help countries assess how much fiscal space, or room in their budgets, may be available for infrastructure, human capital, climate adaptation and other development priorities. The assessment will give greater structure to the consideration of how these investments could affect economic growth and government finances over time, bringing their longer-term implications into debt sustainability analysis. These spending decisions have consequences beyond the annual budget, shaping the opportunities available to businesses and workers, the resilience of communities facing climate risks, and countries' prospects for creating jobs and reducing poverty.

Sharper Risk Checks and More Reliable Debt Data

The reforms will draw a clearer distinction between the risk of debt stress and debt being unsustainable, strengthening the analysis used to judge a country's financial position. Changes include refining how debt-carrying capacity is measured, recalibrating and broadening the thresholds used to assess risks, and introducing new debt sustainability tools. Updated realism tools and stress tests will support more consistent and accurate forecasts, with refined and streamlined criteria for debt coverage helping clarify which obligations enter the analysis. Incentives to improve debt data transparency will encourage countries to provide better information for these assessments.

Extensive consultations informed the review, drawing on contributions from the World Bank and IMF Executive Boards, creditor and borrower countries, development partners, academia, civil society and the private sector. The revised framework is expected to become operational in the second half of 2027, giving the institutions time to complete updated operational guidance and provide extensive training for its users. That preparation will support the practical use of the new tools in the borrowing and lending decisions that shape countries' development prospects.