Are debt sustainability frameworks compatible with climate and nature action?: findings from a new dataset of the IMF’s Debt Sustainability Analyses

Debt sustainability analyses (DSAs) face numerous challenges. Highly technical methodologically, their outcomes bear enormous political significance as not only do they govern the operational lending of the World Bank-International Monetary Fund (IMF) grant-loan mix for low-income countries (LICs) but they also affect the risk perception of the private sector. In the context of heightened debt vulnerability, which a growing proportion of countries currently face, DSAs indicate the susceptibility of debt levels to various types of shocks and how different policy scenarios impact debt sustainability. Importantly, these assessments determine distributional impacts of the cost of a debt crisis – and whether and what size of debt restructuring is needed to bring a country’s debt back to sustainable levels. They provide the envelope for negotiations regarding the amount of debt relief the borrower will seek to negotiate with its creditors. The macro-critical impacts of climate change and nature loss represent key additional concerns on top of the longstanding challenges inherent to these exercises.