Incorporating Adaptation and Resilience into Macroeconomic Assessments

Abstract

Climate and nature have become a major source of shocks and potential debt stress for developing countries. Disasters destroy infrastructure and reduce revenue. Degraded ecosystems, like mangroves, coral reefs, and soil, make those losses larger – pushing up debt burdens and borrowing costs at the moment countries most need fiscal space to invest in resilience.

Good borrowing, lending and policy decisions depend on finance ministries, debt management offices, the IMF and the World Bank understanding these risks and interventions and agreeing on how to measure them.

The IMF-World Bank Debt Sustainability Analysis (DSA) is a critical tool for building that shared understanding. As a central pillar of the international financial architecture, the DSA shapes how risk is defined, priced, and managed across the entire system – informing concessional borrowing limits, debt restructuring, costs of capital, and fiscal policy advice.

In September 2026, the IMF and World Bank Boards approved the first major reform of the Low-Income Country Debt Sustainability Framework (LIC-DSF) in nearly a decade. The reform adds a new Long-Term module which will assess the debt-related impacts of physical climate risks as well as the benefits and costs of resilience policies and investments.

As the revised framework becomes operational in the second half of 2027, we recommend that the IMF and World Bank:

1. Set out a transparent and consistent method and calibration library for estimating the benefits of resilience investments. A shared, open library of reference parameters and modelling guidance for specific interventions will function as a global benchmark for how other institutions conceptualise and structure resilience finance.
   
2. Work with partners to develop guidance and SovTech tools to make this analysis practical for Ministries of Finance. Translating existing or proposed national plans and innovative instruments into KPI-linked evidence that can feed into the Long-Term Module requires more policy analysis which can be supported by emerging SovTech tools to make this process more usable and scalable.