The Executive Board of the International Monetary Fund (IMF) has intimated that it expects to operationalize the reviewed IMF Debt Sustainability Framework for Market Access Countries (MAC DSA) in the final quarter of 2021/first quarter of 2022.
According to the International Monetary Fund, this will be preceded by the completion of the accompanying Guidance Note and template, and extensive engagement with country authorities and other external stakeholders.
“The transition between the old and the new framework will be carefully managed to ensure consistency,” the Fund added.
Giving some background, the IMF asserted that on January 14, 2021 the Executive board reviewed its outfit’s Debt sustainability Framework for Market Access Countries (MAC DSA).
“The review revealed scope to improve the MAC DSA framework’s ability to identify risk of sovereign stress and better align it with the IMF’s lending framework, to be achieved by replacing the current approach with a new methodology.
“The framework is expected to be operationalized in the final quarter of 2021/first quarter of 2022”.
The MAC DSA plays a key role in the Fund’s core functions of surveillance and lending. In surveillance, the framework helps identify a member’s vulnerability to sovereign stress to steer the member away from such stress.
In Fund-supported programs, that is lending which often take place after the stress has already developed, the IMF holds that the DSA helps determine if sovereign stress can be resolved via a combination of IMF financing and economic reforms, or if measures such as debt restructuring are needed to deliver medium-term debt sustainability.
Additionally, the framework is also used in developing IMF conditionality and informing the need for debt relief in debt restructuring operations undertaken in the context of Fund-supported programs.
Highlighting further, the IMF said that since the introduction of the Debt Sustainability Framework for Market Access Countries (MAC DSA) in 2002, it has been reviewed in several times including 2003, 2005, and 2011–13.
“The 2011–13 review introduced key features, including a risk-based approach through distinction between high and low scrutiny countries, standardization of writeup and publication requirements, realism tools to guard against optimistic economic projections, a heatmap summarizing debt vulnerabilities, and debt fancharts to give a sense of the uncertainty around the projected path of the debt/GDP ratio”.
“A careful review over the past two and a half years has revealed scope for further improvements, so as to predict sovereign stress with greater accuracy,” the IMF mentioned.
The new framework also includes a broader and more consistent debt coverage, a longer projection horizon, new tools at multiple horizons based on superior analytical methods that account for countries’ structural characteristics, and enhanced transparency in the bottom-line assessments, including the exercise of judgment.
Furthermore, the new tools support probabilistic debt sustainability assessments, as required by the Fund’s lending framework.
In conclusion, the Executive Directors welcomed the wide-ranging and comprehensive review of the Debt Sustainability Framework for Market Access Countries (MAC DSA), to be renamed “Sovereign Risk and Debt Sustainability Framework for Market Access Countries” (MAC SRDSF) to capture the full range of its analysis.
“Against the backdrop of rising vulnerabilities related to the pandemic, they broadly supported the proposed reforms aimed at improving the framework’s capacity to predict sovereign stress, enhancing transparency and communication of its results, and aligning it with the three-zone sustainability assessment required under the exceptional access framework”.
