Investors and market players are already leveraging new AI and data science tools to better assess and manage sovereign risk. Meanwhile, many finance ministries and their debt management officers, with tighter budgets and smaller teams, are still working mostly in spreadsheets. The gap between the two deepens the information and resource asymmetries between investors and borrowers. And it is widening at a bad moment.
Public debt is rising almost everywhere, but debt pressure is heaviest where the capacity to manage it is thinnest. Between 2022 and 2024, developing countries paid out $741 billion more in principal and interest on their external debt than they received in new financing – the largest gap in at least 50 years. The risks finance ministries must plan for are multiplying: climate and nature shocks, commodity swings, a fertilizer crisis, conflict and higher interest rates. Increasingly, these shocks arrive together. Borrowing has become more expensive just as the margin for error has shrunk. While large economies have teams of analysts to work through complex debt scenarios, most low-income countries rely on much smaller teams with far less capacity.
At the same time, advances in software, AI and data science mean the tools traditionally used to assess sovereign debt now lag well behind what is technically possible.
Sovereign finance technology, or SovTech, is the application of software engineering, data science and AI to sovereign debt analysis and public financial management. The aim is to close the gap in two ways: first, by capturing repeatable work in software; and second, by giving economists validated tools that free up time for deeper analysis. Lean teams can then assess more scenarios, more quickly and with greater confidence.
The tools are built to give sovereign and country risk analysis speed, reach and readiness.
âž” Speed, because work that took hours now takes minutes.
âž” Reach, because that saved time allows small teams to assess more risks and explore more scenarios.
âž” Readiness, because governments can test the impact of shocks and policy responses before they happen, allowing them to prepare earlier and respond faster.
SovTech: being built for the public good
The name echoes GovTech for public administration, RegTech for compliance and SupTech for financial supervision. The difference is who it is for. Most of the sovereign risk tools being built today are built by the market, for the market: proprietary, siloed and priced for institutions that can pay. The ministries and debt offices whose numbers are being analysed are rarely the users, because there is no commercial return in building for them.
That is why SovTech is being developed as validated shared infrastructure for the public good. The core tools are open source and philanthropically funded, with common standards and a common vocabulary, for any government or debt team to use and build on. Not every Sovtech tool will be open source, but every one shows its working, so it can be checked, and so creditors and borrowers can discuss the assumptions, not waste time on aligning the underlying machinery.
Uganda asks which investments could cushion the next shock
Uganda shows how that gap plays out in practice. Agriculture is the engine of Uganda’s economy. It employs close to 70 per cent of the working population and is mostly rain-fed. In 2017 a severe drought cut growth by 1.5 percentage points below projection, affected 1.3 million Ugandans and set off unplanned disaster spending, a sharp fall in farm output and a shortfall in domestic revenue. As the Ministry of Finance, Planning and Economic Development puts it in its interim report, what were once shocks are becoming structural features of the economy.
As the assessed risk rises, borrowing costs go up and fiscal space tightens. This means the moment a country most needs to invest in adaptation and resilience is also the moment its financing terms become most restrictive, and this is largely due to a measurement bias in the models. Sovereign risk assessments have become good at pricing in damage, because damage can be expressed as a statistic. The benefits of resilience measures are harder to measure, so they rarely feature in the projections that determine creditworthiness. Spending on resilience becomes harder to justify, and the result is persistent underinvestment.
So the Ministry asked which projects in its Fourth National Development Plan could protect growth and revenue, reduce the fiscal cost of disasters and strengthen debt sustainability. Working with NatureFinance, Systemiq, LSE and Teal Insights, it mapped resilience interventions such as irrigation, soil restoration and agroforestry to their effects on agricultural output, exports and revenue. It then translated those effects into the growth and debt paths that debt sustainability analyses and rating models already use. Those paths are now being run through SovTech’s first tool, a coded rebuild of the IMF and World Bank’s Debt Sustainability Framework for Low-Income Countries (LIC-DSF).
The Ministry’s preliminary findings show that a severe drought can reduce Uganda’s GDP by around 4%. But with the planned adaptation and resilience measures in place, at least 0.76 percentage points of GDP are protected in a severe climate year, and the present value of public debt sits 1.1 to 1.2 percentage points of GDP lower than on the unmitigated path. In this case, the analysis showed positive outcomes from resilience investments, but that will not always be true. These tools are built to test, not to assume. They let a country check whether a given resilience investment improves its debt path or adds to the bill, and show the result in the numbers its lenders already read. Some investments will pass that test; others will not. Poorly designed or poorly financed projects can still create fiscal vulnerabilities.
Uganda has now done this once, with four institutions behind it. Because the results are being connected to a coded version of the debt framework, the Ministry will not have to start from scratch when the forecasts change or the next financing decision comes round. Other ministries will want to ask the same question of their own numbers. That is what SovTech’s early tools are being built to do: remove the repeatable work to enable increased depth and breadth of analysis, improving country readiness.
The first SovTech tool: an early prototype for the IMF-World Bank Debt Sustainability Framework for Low-Income Countries
That first tool starts with the debt sustainability analysis that matters most to a low-income country’s access to finance: the assessment carried out by the IMF and World Bank under the LIC-DSF. The analysis sits in an Excel template that has grown, version by version, to 199,437 formula cells across 86 sheets, making it complex, resource-intensive and often not accessible to finance ministries. This limits a country’s ability to test scenarios, build evidence for a policy or borrowing strategy, and stand on an equal footing in the decisions about how much it can borrow and at what cost.
Teal Insights, commissioned by NatureFinance and working alongside Systemiq and LSE, has built a prototype of the Excel template, converting it into code. It has the same inputs and the same outputs, differentially tested cell by cell against the official template. Validated, and simpler to use, this rebuild opens up new possibilities: an economist can change the growth, revenue or financing assumptions and see how the debt indicators lenders watch move against the baseline. When the basics take hours, nobody gets to the climate scenario or the second borrowing option. When they take minutes, a debt office can test combinations of spending and borrowing before committing to one, and arrive at the IMF conversation with evidence of its own.
With shared standards, these tools can become modular, allowing new layers of validated analysis to be added and tested. Uganda’s resilience modelling is the first demonstration of what that looks like in practice.
A field, not a product
None of this is finished. What happens next depends less on NatureFinance than on the people who will use the output: debt offices to co-design the next generation of tools; analysts at the IMF, the World Bank and the rating agencies to identify what would allow them to rely on them; investors to identify remaining gaps; and public-good funders to support the teams building this shared infrastructure.
NatureFinance’s role in SovTech is catalytic, establishing the category and helping fund its core tools, built for the public good. The risks are multiplying, the obligations are growing and the interdependencies between them are getting harder to see. Analysis that keeps pace with new, continuously shifting realities demands continuous innovation. SovTech exists so that borrowers and lenders can do more, and do it from the same numbers.
NatureFinance will host a session on SovTech in Bangkok on Thursday 15 October, during the IMF and World Bank Annual Meetings. If you are there, come and talk to the people building these tools. If you are not, and you work in a debt office, at a lender or a rating agency, or you fund public goods, get in touch at contact@naturefinance.net.
Arend Kulenkampff, Innovative Finance Lead, NatureFinance
