CSOs call on World Bank and Fund to transform Debt Sustainability Framework

29 June 2016

In June a group of 35 NGOs from around the world submitted a joint position to the World Bank and IMF as they review their Debt Sustainability Framework (DSF). The DSF establishes the process for how Debt Sustainability Assessments (DSAs) are conducted for countries which are permitted to borrow at concessional terms from the Bank or Fund. This includes all low income countries as well as some middle income countries.

The submission, with signatories including international networks such as the African Forum and Network on Debt and Development (AFRODAD), and national groups such as Caritas Honduras, sets out 10 recommendations for the DSF review. Demands include that future assessments are carried out independently and that the sustainability of debts be assessed by considering basic needs of states as set out by the Sustainable Development Goals, rather than just by the ability to pay. Furthermore, the submission calls for the DSF to support productive investment in states even if it incurs more debt in the short term, as long as the investment will feasibly “be shown [to] improve the debt situation through the government revenue it generates, with positive impacts on reducing poverty and inequality”, in contrast to the current DSF approach which makes no such distinction.

An additional recommendation of the submission is that the DSF “include currently hidden liabilities”, in particular because of the prevalence of public-private partnerships (PPPs), frequently backed by the Bank and Fund, which governments can use to hide PPP-related debt costs that are more expensive than direct borrowing (see Observer Summer 2016, Spring 2016). The submission further calls for the DSF to make the ratio of debt service obligations to government revenue the most important indicator it use; to include domestic debt but maintain distinction with external debt; to conduct more work on external private debt; review existing stress test approaches; and to include all countries in the DSF because “debt crises can arise in any country, no matter what their income level.”

Tirivangani Mutazu of AFRODAD commented that “DSAs must tackle over-indebtedness of all deserving countries … including middle income countries in Africa, such as Kenya, Nigeria, South Africa. Debt sustainability calculations should be done with serious consideration for the costs of meeting the new Sustainable Development Goals. Debt sustainability must also be based on the welfare and development needs of a country.”