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The Debt Sustainability Framework (DSF) is designed to guide the borrowing decisions of low-income countries in a way that matches their financing needs with their ability to repay now and in the future. 

The framework requires regular debt sustainability analyses of a country’s projected debt burden over the next 10 years and its vulnerability to economic and policy shocks. Countries vary in their ability to handle debt. The DSF classifies countries’ debt-carrying capacity into three categories – strong, medium, and weak.

The framework uses a composite indicator that considers a country’s historical performance, outlook for real growth, remittance inflows, international reserves, and other factors. Different indicative thresholds for debt burdens are used depending on the country’s debt-carrying capacity. Thresholds corresponding to strong performers are highest, indicating that countries with good macroeconomic performance and policies can generally handle greater debt accumulation.

Based on these thresholds and benchmarks, DSAs include an assessment of the risk of external and overall debt distress based on four categories: low risk; moderate risk; high risk, and in debt distress (when a distress event, like arrears or a restructuring, has occurred or is considered imminent).

This chart shows the risk ratings for low-income countries.