International Monetary Fund (IMF) has approved major changes to the way it assesses debt risks in low-income countries, but will temporarily withhold key data underpinning the new model, raising concerns over transparency.

The IMF Executive Board approved the changes at its September 9 meeting, following the first review of the joint IMF-World Bank Debt Sustainability Framework for Low-Income Countries (LIC-DSF) since 2017.

The framework, introduced in 2005, is used by the IMF to assess whether countries’ public debt is sustainable and informs its lending decisions and fiscal policy advice to low-income economies. The Fund said debt conditions in low-income countries had deteriorated since the last review, with debt levels rising and a growing share of borrowing coming from commercial sources rather than concessional financing.

It also noted that rising financing needs for climate adaptation and development had increased pressure on countries, exposing limitations in the existing framework.

Under the revised framework, the IMF will introduce a new model that generates a mechanical risk signal to distinguish countries facing some risk of debt stress from those whose debt is considered unsustainable. The framework will also incorporate tools to assess domestic debt risks and longer-term financing pressures, including those arising from climate adaptation needs.

However, the Board agreed to temporarily withhold the probability thresholds underpinning the new risk signal, as well as individual country risk signals, until the Fund gains more experience with the methodology.

While some Executive Directors called for full disclosure in the interest of transparency, the majority supported withholding the information. The data will be placed on the IMF’s “negative list” under its Transparency Policy and will not be routinely published.

The Fund will also replace the term “debt distress” with “debt stress” in most contexts, saying the change would help distinguish temporary debt pressures from situations involving outright insolvency.

The review retained the five per cent harmonised discount rate used in debt sustainability calculations.