Focusing the IMF’s Role in Development Finance on Debt Sustainability

The International Monetary Fund (IMF) has a limited but essential role in development finance. The IMF is itself not a development lender, but its assessment of debt sustainability plays a central role in both determining access to financing in in low-income countries and the balance between financing, adjustment and negotiated restructuring in discussed low- and lower middle-income “market access” countries. Efforts to move away from balance of payments-based assessments of debt sustainability have already proved to be a mistake. The IMF also can play an unexpected role in facilitating new multilateral development bank flows by reforming the Voluntary Trade Arrangements (VTAs) for the IMF’s Special Drawing Rights (SDRs) to allow more efficient and reliable conversion of SDRs into hard currency.