International Monetary Fund


Public Debt Limits in IMF-Supported Programs

Last Updated: July 2015

The Fund's debt limits policy has been in place since the 1960s, with recent reforms undertaken in 2009 and 2014.The 2014 reform of the policy (Policy on Public Debt Limits in Fund-Supported Programs)—which became effective on June 30, 2015—is based on a set of robust principles guiding the use of public debt conditionality in Fund-supported arrangements across the membership. Key changes with respect to the 2009 policy include, inter alia, the broadening of the policy to encompass all public debt rather than only external public debt; an integrated treatment of concessional and non-concessional external debt; and closer links between public debt vulnerabilities and the use and specification of public debt conditionality.

Under the new policy, public debt conditionality should normally be included in Fund arrangements when a member faces significant debt vulnerabilities, or when there are merits to using debt targets instead of, or as a complement to, "above-the line" fiscal conditionality. The appropriate form of debt conditionality differs between countries that normally rely on concessional external financing and those that do not.

Countries that do not normally rely on concessional external financing

For these cases, judgments on the extent of debt vulnerabilities are informed by a set of tools provided within the debt sustainability framework for market access countries (MAC-DSA).

A heat map summarizes the risks to debt sustainability in the MAC-DSA. For example, heat map indicators flashing "red", i.e. exceeding their benchmarks under the baseline (either for debt or gross financing needs; in percent of GDP), would signal significant debt vulnerabilities. In such circumstances, debt targets would take the form of limits on total public debt or targeted debt limits, depending on the extent and type of vulnerability and taking into account country-specific circumstances.

Countries that normally rely on official concessional financing

For these countries, the assessment of debt vulnerabilities is informed by the low-income countries debt sustainability framework (LIC-DSF). An external risk of debt distress rating of "moderate", "high", or "in debt distress" would signal the presence of significant external public debt vulnerabilities. The extent of debt vulnerabilities related to domestic debt will be determined through the analysis of total public debt and reflected in the overall risk of debt distress.

The specific design of external debt limits is a function of the member country's risk of external debt distress (taking into consideration the extent and type of debt vulnerabilities); the quality and timeliness of the financial information produced by the accounting system of a member country's public sector; and other relevant macroeconomic circumstances in the member country.

Table 1 summarizes guidance on the form that debt conditionality should take to address vulnerabilities related to external debt in countries that normally rely on concessional financing. For countries assessed at low risk of debt distress, program conditionality normally need not include limits on public external borrowing. For countries at moderate risk of external debt, debt conditionality would typically take the form of a limit on the present value of new external debt. For countries at high risk of external debt, debt conditionality would mostly be set on the nominal levels of external debt.

Special considerations are warranted in certain circumstances. First, for countries at moderate risk of debt distress but where the quality of debt monitoring is weak, targets would be set on nominal external debt. Second, in countries with significant links to international capital markets, annual targets would be set on total public debt or foreign currency debt, depending on the level of risk of debt vulnerability. Additionally, in all cases, conditionality on external or domestic debt may be warranted on account of specific types of debt vulnerabilities or instead of, or as a complement to, "above-the line" fiscal conditionality.


The degree of concessionality of a loan is measured by its "grant element." The grant element is defined as the difference between the loan's nominal value (face value) and the sum of the discounted future debt-service payments to be made by the borrower (present value), expressed as a percentage of the loan's face value.

Whenever the interest rate charged for a loan is lower than the discount rate, the present value of the debt is smaller than its face value, with the difference reflecting the (positive) grant element of the loan. The discount rate used to calculate the loan's present value is a key assumption in the calculation of the grant element. On October 11, 2013, a new unified discount rate of 5 percent per annum was approved by the IMF Executive Board. The new discount rate replaces the previous discount rate system based on currency-specific "commercial interest reference rates" (CIRRs).

Typically, a loan is considered to be concessional if its grant element is at least equal to 35 percent. Under this approach, the Fund may assess on a case-specific basis whether an envisaged combination of financing instruments can be treated as a package for purposes of meeting concessionality requirements. A number of elements are taken into consideration for this determination including but not limited to: (i) identical intended use or purposes for the financing; (ii) inter-related schedules for disbursement; (iii) identical parties to the financing. None of these elements alone is determinative, but packages meeting a number of these elements would tend to show a greater degree of relatedness, supporting a determination of an integrated incurrence of debt.

Concessionality calculator and PV tool

The concessionality calculator posted on this website facilitates the calculation of a grant element of an individual debt instrument. It takes into account commissions and fees as well as alternative standard repayment profiles. It can also calculate the grant element for a nonconcessional loan that is packaged with a grant.

The Present Value (PV) Monitoring Tool is an Excel based file that has been developed to set and monitor debt targets under the Fund's new (2014) debt limit policy. It allows users to calculate the present value and grant element for multiple loans at the same time. It provides summary statistics for the entire debt portfolio, including total present value, weighted average grant element, and other useful statistics such as interest rate range and variable interest loan exposure. The PV Monitoring Tool also includes sheets that allow users to calculate the present value and grant element of unconventional loans, such as instruments issued by the Islamic Development Bank. For background on such instruments, please see the Fund's Islamic Financepage.