As organizations based in and/or working on the Arab world, we welcome the opportunity to provide feedback on the review of the IMF and World Bank Debt Sustainability Framework for Low-Income Countries. We recognize that the proposed reforms respond to real weaknesses in the current framework. However, our central concern is that the review should not only improve the technical measurement of debt distress. It should also address the political and developmental consequences of how “debt sustainability” is defined and used.

Definition of debt sustainability. We believe the LIC-DSF should not assess sustainability only through the lens of whether a country can continue servicing debt. Debt sustainability should reflect both repayment capacity and the preservation of fiscal space for development, public services, climate adaptation, social protection, and broader recovery needs. A debt path cannot be considered sustainable if it is achieved by compressing social spending, delaying reconstruction, accumulating arrears, or relying on reforms that are politically or socially destabilizing. This is especially important in fragile and conflict-affected contexts, where adjustment can quickly deepen institutional weakness, social fragmentation, displacement, and public distrust.

Fragile and conflict-affected settings as a useful lens. Fragile and conflict-affected Arab contexts such as Yemen and Syria show why the Debt Sustainability Framework for Low-Income Countries should assess debt sustainability as more than the mere capacity of states to repay. Yemen falls under this framework, but the long gap since its latest published debt sustainability analysis illustrates the difficulty of maintaining meaningful debt assessments amid conflict as well as the severe disruption in public services and persistent data gaps. Syria is also an important emerging test case. As it re-engages with international financial institutions and concessional financing after the clearance of arrears, the framework will need to assess debt sustainability in a context marked by damaged infrastructure, weak revenue capacity, liquidity constraints, sanctions-related uncertainties, and urgent recovery and service-delivery needs. In such contexts, a debt path that restores headline indicators may still be socially and politically unsustainable if it relies on compressing basic services, delaying recovery spending, or shifting adjustment burdens onto low-income households, workers, women, and displaced communities.

In conflict-affected settings, shocks such as renewed violence, displacement, import disruptions, aid volatility, climate events, or sanctions-related disruptions are not exceptional “tail risks.” Where such shocks are recurrent or likely, they should be reflected in the baseline or in clearly explained country-specific scenarios, rather than treated only as remote stress-test events. This would also make the LIC-DSF more consistent with the World Bank’s own refreshed FCV approach, which emphasizes earlier risk anticipation, differentiated engagement across crisis, transition, conflict-affected and at-risk settings, and the need to adapt tools to the realities of FCV contexts.

In what follows, we provide our feedback on specific proposed reforms.

Debt-carrying capacity.On the proposed enhancement of debt-carrying capacity, we agree that replacing world growth with a country-specific measure of exposure to global macro-financial conditions, and adding output volatility, can improve the framework. However, the concept of “debt-carrying capacity” should not be reduced to macroeconomic repayment capacity. In the MENA region, countries’ capacity to carry debt is shaped by conflict, sanctions, displacement, remittance volatility, dependence on imports, climate stress, etc. These factors do not only affect growth projections; they also affect whether governments can raise revenue fairly, maintain public services, and deliver credible recovery plans. The revised framework should also avoid treating broad institutional scores as a substitute for country-specific political economy analysis. Institutional indicators should be limited to factors with a direct bearing on debt sustainability, such as revenue capacity, public financial management, debt management, service-delivery systems, data reliability, and implementation capacity. In fragile and conflict-affected settings, these indicators should be complemented by qualitative analysis of conflict dynamics, territorial fragmentation, sanctions, displacement, reconstruction needs, etc. 

Public debt stress and fiscal space.We also recognize the value of  indicators such as gross financing needs, interest payments, and revenue excluding grants, since they help show whether a government is facing heavy financing and repayment pressure. However, these indicators should not be read as a complete measure of fiscal space. In many fragile settings, grants and concessional financing often play a central role in keeping basic services and recovery efforts possible in the short term. At the same time, essential spending may already be underfunded in the baseline government budget. A country may therefore appear to have manageable financing needs only because spending on health, education, social protection, recovery, or climate adaptation has already been compressed. The revised framework should present debt-stress indicators alongside a simple assessment of whether the baseline debt path leaves adequate space for essential services, recovery, and climate resilience. This would make the social trade-offs of debt sustainability analysis more visible.

External and domestic public debt. We agree that external public debt indicators remain important, especially in countries where external arrears are large and where foreign exchange constraints limit the state’s ability to service external obligations. At the same time, overall public debt stress should not be assessed through a single aggregate measure that obscures the different political, financial, and social consequences of external and domestic debt. External and domestic debt should be analyzed separately, as they involve different creditor relationships, repayment constraints, restructuring possibilities, and implications for the domestic economy. Public debt is not only a relationship between the state and external creditors. It can also involve domestic banks, central banks, public institutions, suppliers, workers, retirees, depositors, municipalities, service providers, and households. The revised LIC-DSF should therefore assess not only how much debt a state carries, but who holds that debt, who depends on state payments, and who bears the costs of repayment, arrears, or restructuring.

Yemen illustrates this well. Although Yemen is assessed as being in both external and overall debt distress, its debt problem is not only external. The IMF-WB DSA reports that, as of December 31, 2024, Yemen’s total central-government public debt stood at about US$9.2 billion, equivalent to 128 percent of GDP. External public and publicly guaranteed debt accounted for about US$6.4 billion, or 79 percent of GDP, while domestic debt reached about US$3.5 billion, or 50 percent of GDP. This means that any debt treatment cannot be assessed only in relation to external creditors. It may also affect domestic institutions, public-sector payments, social spending, service delivery, and groups dependent on state obligations. Yemen therefore shows why the LIC-DSF should analyze external and domestic debt separately, while also assessing how each type of debt shapes fiscal space and social outcomes.

Syria presents a similar concern in an emerging IFI re-engagement amid reconstruction efforts. According to the World Bank’s Syria Macro-Fiscal Assessment, Central Bank data reported Syria’s total debt at about US$27 billion at end-2024, equivalent to around 128 percent of 2024 GDP. External debt accounted for about US$22.3 billion, or 104 percent of GDP, while domestic government debt had reportedly risen to around US$5 billion by March 2025, equivalent to about 24 percent of GDP.These figures show that even where external arrears and external debt are central, domestic debt remains significant. It may be linked to domestic banks, central bank financing, public-sector obligations, unpaid suppliers, wages, municipalities, and service delivery. Syria therefore demonstrates why debt sustainability analysis should ask not only whether the state can service external debt, but also how debt treatment and repayment pressures affect domestic institutions, public services, and recovery needs.

High Risk rating and debt relief. We support making the High Risk rating more detailed, but only if this helps inform better policy responses. More detail can help show whether a country is facing a short-term payment problem or a deeper debt problem that requires debt relief. However, this should not become a way to delay action or to describe a country as “sustainable” simply because its indicators fall just below a technical threshold. A more useful High Risk category should therefore guide earlier and fairer responses by the IMF, World Bank, and creditors, including greater use of grants and concessional finance, temporary pauses on debt payments where appropriate, and debt restructuring where needed. In restructuring cases, the goal should be to restore debt sustainability in a way that leaves the country, at most, at average risk of debt distress, with enough space to absorb future shocks and finance essential development needs.

Debt data challenges. We support greater attention to debt data gaps, especially in conflict-affected settings where reliable data may be missing or impossible to verify. However, weak data should not be interpreted in ways that make fragile states appear simply irresponsible or unwilling to disclose information. In many conflict settings, weak data reflects institutional disruption and the destruction or loss of records. The proposed debt data confidence module should therefore distinguish between lack of transparency and lack of capacity or access caused by conflict or other shocks. It should identify what information is missing, where verification is needed, and what technical support is required. It should also ensure that uncertainty does not lead analysts to understate recovery needs or overlook costs that are already being shifted onto households and public services.

Transparency and participation. In fragile and conflict-affected settings, debt data gaps and macroeconomic assumptions are not only technical problems; they shape important socio-political choices. DSAs should therefore include plain-language summaries, disclose key assumptions on growth, revenue, grants, exchange rates, debt coverage, and fiscal adjustment, and create space for civil society, researchers, and affected communities to scrutinize the analysis before it informs IMF or World Bank decisions.

Domestic debt and arrears. We strongly support a domestic debt module. It should also ask who holds that debt and who may be affected by repayment or restructuring. Domestic debt may be linked to banks, social security institutions, suppliers, workers, retirees, depositors, or households. This means that debt treatment can have direct social consequences.

The module should also capture unpaid obligations, including arrears to suppliers, unpaid wages, public-sector obligations, central bank financing, state-owned enterprise liabilities, government guarantees, and other hidden liabilities. In fragile and conflict-affected contexts, arrears can become austerity by other means. The state may appear to reduce spending, but in practice it is delaying payments to workers, hospitals, municipalities, suppliers, and service providers. Significant arrears to public-sector workers, essential suppliers, healthcare facilities, or municipalities should therefore be treated as a warning sign of debt distress.. They show that the cost of adjustment is already being shifted onto households and essential public services.

Long-term development and recovery needs. We welcome the proposed long-term module, especially its attention to climate adaptation and development needs. However, the module should not treat development, climate and reconstruction spending mainly as fiscal risks..The long-term module should therefore include a development-positive or “ambitious” scenario, following Eurodad’s joint CSO letter,  that estimates real financing needs for recovery, public services, climate adaptation, and development, and identifies the mix of grants, concessional finance, debt relief, and domestic resource mobilization required to meet those needs properly and sustainably. Where recovery strategies rely on blended finance, guarantees, private-sector mobilization, or MSME-led job creation, the LIC-DSF should assess not only their debt and contingent-liability risks, but also whether they genuinely expand livelihoods, service delivery, and resilience in FCV settings.

Overall assessment. Overall, we consider the proposed reforms useful but insufficient. They improve the technical apparatus of the LIC-DSF, but do not fully change its underlying orientation. Debt sustainability should be assessed alongside development sustainability, social sustainability, climate sustainability and political feasibility. The review should also address threshold effects between the LIC-DSF and the framework used for market-access or middle-income countries. Countries facing similar pressures should not receive radically different analytical treatment simply because they fall on different sides of an income-classification boundary. This is particularly relevant for the Arab region, where low-income, lower-middle-income, and middle-income crisis cases face overlapping challenges of conflict, debt distress, public-service collapse, and constrained fiscal space.

Do the proposed reforms strike the right balance between analytical rigor and ease-of-use?

The proposed reforms improve analytical rigor by incorporating public debt stress, domestic debt, debt data confidence, output volatility and long-term risks. However, ease-of-use should not mean avoiding the political and social consequences of debt sustainability analysis. The framework can remain operationally simple while still requiring staff to explain what the debt path implies for public services, reconstruction, climate adaptation and social protection.

We recommend adding a concise “fiscal space and public needs” section to the LIC-DSF dashboard. This should show whether the baseline allows adequate spending on essential services, recovery and climate resilience, and whether sustainability is being achieved through grants, concessional finance, fair debt treatment and progressive revenue mobilization, or through cuts and regressive measures. In fragile and conflict-affected settings, oversimplification can become misleading if it hides uncertainty, data gaps and unintended socioeconomic risks.

Link to sign-on Click here

Signatories:

Karam Shaar Advisory (Syria) (x2)

The Tahrir Institute for Middle East Policy (Regional) (x2)

Arab Watch Coalition (Regional) (x1)

Wedyan Association for Society Development (Yemen) (x1)

Yemeni Observatory for Human Rights (Yemen) (x2)

Sharing is caring!