External debt

External loan (or foreign debt) is the total debt a country owes to foreign creditors; its complement is internal debt which is owed to domestic lenders. The debtors can be the government, corporations or citizens of that country. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank. Note that the use of gross liability figures greatly distorts the ratio for countries which contain major money centers such as the United Kingdom due to London's role as a financial capital. Contrast with net international investment position.

Definition

According to the International Monetary Fund, "Gross external debt is the amount, at any given time, of disbursed and outstanding contractual liabilities of residents of a country to nonresidents to repay principal, with or without interest, or to pay interest, with or without principal".[1]

In this definition, the IMF defines the key elements as follows:

Outstanding and actual current liabilities
Debt liabilities include arrears of both principal and interest.
Principal and interest
When the cost of borrowing is paid periodically, as commonly occurs, it is known as an interest payment. All other payments of economic value by the debtor to the creditor that reduce the principal amount outstanding are known as principal payments. However, the definition of external debt does not distinguish between principal payments or interest payments, or payments for both. Also, the definition does not specify that the timing of the future payments of principal and/or interest need be known for a liability to be classified as debt.
Residence
To qualify as external debt, the debt liabilities must be owed by a resident to a nonresident. Residence is determined by where the debtor and creditor have their centers of economic interest—typically, where they are ordinarily located—and not by their nationality.
Current and not contingent
Contingent liabilities are not included in the definition of external debt. These are defined as arrangements under which one or more conditions must be fulfilled before a financial transaction takes place. However, from the viewpoint of understanding vulnerability, there is analytical interest in the potential impact of contingent liabilities on an economy and on particular institutional sectors, such as the government.

Generally, external debt is classified into four heads:

(1) public and publicly guaranteed debt;
(2) private non-guaranteed credits;
(3) central bank deposits; and
(4) loans due to the IMF.

However, the exact treatment varies from country to country. For example, while Egypt maintains this four-head classification,[2] in India it is classified in seven heads:

(a) Multilateral,
(b) Bilateral,
(c) IMF loans,
(d) Trade credit,
(e) Commercial borrowings,
(f) Non-resident Indian and person of Indian origin deposits,
(g) Rupee debt, and
(h) NPR debt.

External debt sustainability

External debt to gdp
Map of countries by external debt as a percentage of GDP
The chart depicts the share of U.S. gross external debt by debtors. [1]

Sustainable debt is the level of debt which allows a debtor country to meet its current and future debt service obligations in full, without recourse to further debt relief or rescheduling, avoiding accumulation of arrears, while allowing an acceptable level of economic growth.[3]

External-debt-sustainability analysis is generally conducted in the context of medium-term scenarios. These scenarios are numerical evaluations that take account of expectations of the behavior of economic variables and other factors to determine the conditions under which debt and other indicators would stabilize at reasonable levels, the major risks to the economy, and the need and scope for policy adjustment. In these analyses, macroeconomic uncertainties, such as the outlook for the current account, and policy uncertainties, such as for fiscal policy, tend to dominate the medium-term outlook.[4]

The World Bank and IMF hold that "a country can be said to achieve external debt sustainability if it can meet its current and future external debt service obligations in full, without recourse to debt rescheduling or the accumulation of arrears and without compromising growth". According to these two institutions, "bringing the net present value (NPV) of external public debt down to about 150 percent of a country's exports or 250 percent of a country's revenues" would help eliminating this "critical barrier to longer-term debt sustainability".[5] High external debt is believed to be harmful for the economy.[6]

Indicators

There are various indicators for determining a sustainable level of external debt. While each has its own advantage and peculiarity to deal with particular situations, there is no unanimous opinion amongst economists as to a sole indicator. These indicators are primarily in the nature of ratios—i.e., comparison between two heads and the relation thereon and thus facilitate the policy makers in their external debt management exercise. These indicators can be thought of as measures of the country’s “solvency” in that they consider the stock of debt at certain time in relation to the country’s ability to generate resources to repay the outstanding balance.

Examples of debt burden indicators include the

(a) Debt-to-GDP ratio,
(b) foreign debt to exports ratio,
(c) government debt to current fiscal revenue ratio etc.

This set of indicators also covers the structure of the outstanding debt, including:

(d) Share of foreign debt,
(e) Short-term debt, and
(f) Concessional debt ("loans with an original grant element of 25 percent or more")[7] in the total debt stock.[8]

A second set of indicators focuses on the short-term liquidity requirements of the country with respect to its debt service obligations. These indicators are not only useful early-warning signs of debt service problems, but also highlight the impact of the inter-temporal trade-offs arising from past borrowing decisions. Examples of liquidity monitoring indicators include the

(a) Debt service to GDP ratio,
(b) Foreign debt service to exports ratio,
(c) Government debt service to current fiscal revenue ratio

The final indicators are more forward-looking, as they point out how the debt burden will evolve over time, given the current stock of data and average interest rate. The dynamic ratios show how the debt-burden ratios would change in the absence of repayments or new disbursements, indicating the stability of the debt burden. An example of a dynamic ratio is the ratio of the average interest rate on outstanding debt to the growth rate of nominal GDP.[9][8][10][11]

See also

Notes

  1. ^ "IMF External Debt Statistics. Guide for Compilers and Users" pp. i-xvi & 1-3, 2003
  2. ^ "External Position of the Egyptian Economy, Fiscal Year 2011/12" Archived 2015-10-29 at the Wayback Machine, Central Bank of Egypt Quarterly, Volume No. 38
  3. ^ UNCTAD/UNDP, 1996
  4. ^ IMF, "Debt- and Reserve-Related Indicators of External Vulnerability", Policy Paper, 2000
  5. ^ Page 4 in "The Challenge of Maintaining Long-term External Debt Sustainability", World Bank and International Monetary Fund, April 2001, ii +48 pp.
  6. ^ Bivens, L. Josh (14 December 2004). "US external debt obligations" (PDF). Debt and the dollar. Economic Policy Institute. p. 2. Archived from the original (PDF) on 2004-12-17. Retrieved 2007-07-08.
  7. ^ "Concessional debt (% of total external debt)". World Development Indicators. World Bank. Retrieved 24 December 2014.
  8. ^ a b “Sri Lanka: Borrowing Capacity Assessment” Archived 2006-11-03 at the Wayback Machine, Asian Development Bank, South Asia Department, Nov. 2003, iv + 30 pp.
  9. ^ "Part III. Use of External Debt Statistics", pp. 169-183 in IMF "External Debt Statistics. Guide for Compilers and Users. 2 IMF, 2003.
  10. ^ Berensmann, Kathrin “How to ensure debt sustainability beyond the HIPC-Initiative?”, Informal hearings of civil society on financing for development, UN Headquarters, 22 March 2004, 6 pp.
  11. ^ Chandrasekhar, C.P. and Ghosh, Jayati "The Crisis of State Government Debt" Archived 2006-11-14 at the Wayback Machine, Macroscan, May 25, 2005

External links

Debt-to-GDP ratio

In economics, the debt-to-GDP ratio is the ratio between a country's government debt (measured in units of currency) and its gross domestic product (GDP) (measured in units of currency per year). A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt. Geopolitical and economic considerations – including interest rates, war, recessions, and other variables – influence the borrowing practices of a nation and the choice to incur further debt.

Debt of developing countries

The debt of developing countries refers to the external debt incurred by governments of developing countries, generally in quantities beyond the governments' ability to repay. "Unpayable debt" is external debt with interest that exceeds what the country's politicians think they can collect from taxpayers, based on the nation's gross domestic product, thus preventing it from ever being repaid. The debt can result from many causes.

Some of the high levels of debt were amassed following the 1973 oil crisis. Increases in oil prices forced many poorer nations' governments to borrow heavily to purchase politically essential supplies. At the same time, OPEC funds deposited and "recycled" through western banks provided a ready source of funds for loans. While a portion of borrowed funds went towards infrastructure and economic development financed by central governments, a portion was lost to corruption and about one-fifth was spent on arms.

Economic history of Ecuador

This article is about the economic history of Ecuador and its evolution from colonial to modern times.

Economic history of Morocco

The economic history of Morocco has largely been charted by the national government through a series of five-year plans. Centralized planning has gradually given way to moderate privatization and neo-liberal economic reforms.

Economy of Nicaragua

Nicaragua's economy is focused primarily on the agricultural sector. It is the least developed country in Central America, and the second poorest in the Americas by nominal GDP. In recent years, under the administrations of Daniel Ortega, the Nicaraguan economy has expanded somewhat, following the global recession of 2009, when the country's economy actually contracted by 1.5%, due to decreased export demand in the US and Central American markets, lower commodity prices for key agricultural exports, and low remittance growth. The economy saw 4.5% growth in 2010 thanks to a recovery in export demand and growth in its tourism industry. Nicaragua's economy continues to post growth, with preliminary indicators showing the Nicaraguan economy growing an additional 5% in 2011. Consumer Price inflation have also curtailed since 2008, when Nicaragua's inflation rate hovered at 19.82%. In 2009 and 2010, the country posted lower inflation rates, 3.68% and 5.45%, respectively.Remittances are a major source of income, equivalent to 15% of the country's GDP, which originate primarily from Costa Rica, the United States, and European Union member states. Approximately one million Nicaraguans contribute to the remittance sector of the economy.

In early 2004, Nicaragua secured some $4.5 billion in foreign debt reduction under the International Monetary Fund and World Bank Heavily Indebted Poor Countries initiative. In April 2006, the US-Central America Free Trade Agreement went into effect, expanding export opportunities for Nicaragua's agricultural and manufactured goods. Textiles and apparel account for nearly 60% of Nicaragua's exports. In October 2007, the IMF approved an additional poverty reduction and growth facility program in support of the government's economic plans. Nicaragua relies on international economic assistance to meet internal- and external-debt financing obligations, although foreign donors curtailed this funding in response to widespread allegations of electoral fraud in Nicaragua's November 2008 elections.

Economy of Nigeria

Nigeria is a middle-income, mixed economy and emerging market, with expanding manufacturing, financial, service, communications, technology and entertainment sectors. It is ranked as the 27th-largest economy in the world in terms of nominal GDP, and the 22nd-largest in terms of purchasing power parity. It is the largest economy in Africa; its re-emergent manufacturing sector became the largest on the continent in 2013, and it produces a large proportion of goods and services for the West African subcontinent. In addition, the debt-to-GDP ratio is 11 percent, which is 8 percent below the 2012 ratio.Previously hindered by years of mismanagement, economic reforms of the past decade have put Nigeria back on track towards achieving its full economic potential. Nigerian GDP at purchasing power parity (PPP) has almost tripled from $170 billion in 2000 to $451 billion in 2012, although estimates of the size of the informal sector (which is not included in official figures) put the actual numbers closer to $630 billion. Correspondingly, the GDP per capita doubled from $1400 per person in 2000 to an estimated $2,800 per person in 2012 (again, with the inclusion of the informal sector, it is estimated that GDP per capita hovers around $3,900 per person). (Population increased from 120 million in 2000 to 160 million in 2010). These figures were to be revised upwards by as much as 80% when metrics were to be recalculated subsequent to the rebasing of its economy in April 2014.Although oil revenues contribute 2/3 of state revenues, oil only contributes about 9% to the GDP. Nigeria produces only about 2.7% of the world's oil supply (in comparison, Saudi Arabia produces 12.9%, Russia produces 12.7% and the United States produces 8.6%). Although the petroleum sector is important, as government revenues still heavily rely on this sector, it remains a small part of the country's overall economy.

The largely subsistence agricultural sector has not kept up with rapid population growth, and Nigeria, once a large net exporter of food, now imports some of its food products, though mechanization has led to a resurgence in manufacturing and exporting of food products, and the move towards food sufficiency. In 2006, Nigeria successfully convinced the Paris Club to let it buy back the bulk of its debts owed to them for a cash payment of roughly US$12 billion.According to a Citigroup report published in February 2011, Nigeria will have the highest average GDP growth in the world between 2010 and 2050. Nigeria is one of two countries from Africa among 11 Global Growth Generators countries.

Economy of Pakistan

The economy of Pakistan is the 23rd largest in the world in terms of purchasing power parity (PPP), and 40th largest in terms of nominal gross domestic product. Pakistan has a population of over 207 million (the world's 6th-largest), giving it a nominal GDP per capita of $1,641 in 2019, which ranks 147th in the world and giving it a PPP GDP per capita of 5,709 in 2018, which ranks 130th in the world for 2018. However, Pakistan's undocumented economy is estimated to be 36% of its overall economy, which is not taken into consideration when calculating per capita income. Pakistan is a developing country and is one of the Next Eleven countries identified by Jim O'Neill in a research paper as having a high potential of becoming, along with the BRICS countries, among the world's largest economies in the 21st century. The economy is semi-industrialized, with centres of growth along the Indus River. Primary export commodities include textiles, leather goods, sports goods, chemicals, carpets/rugs and medical instruments.Growth poles of Pakistan's economy are situated along the Indus River; the diversified economies of Karachi and major urban centers in the Punjab, coexisting with lesser developed areas in other parts of the country. The economy has suffered in the past from internal political disputes, a fast-growing population, mixed levels of foreign investment. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit – driven by a widening trade gap as import growth outstrips export expansion – could draw down reserves and dampen GDP growth in the medium term. Pakistan is currently undergoing a process of economic liberalization, including privatization of all government corporations, aimed to attract foreign investment and decrease budget deficit. In October 2016, foreign currency reserves crossed $24.0 billion which has led to stable outlook on the long-term rating by Standard & Poor's. In 2016, BMI Research report named Pakistan as one of the ten emerging economies with a particular focus on its manufacturing hub.In October 2016, the IMF chief Christine Lagarde confirmed her economic assessment in Islamabad that Pakistan's economy was 'out of crisis' The World Bank predicted in 2016 that by 2018, Pakistan's economic growth will increase to a "robust" 5.4% due to greater inflow of foreign investment, namely from the China-Pakistan Economic Corridor. As of May 2019, the growth rate has been revised and the IMF has predicted that future growth rates will be 2.9%, the lowest in South Asia. According to the World Bank, poverty in Pakistan fell from 64.3% in 2002 to 29.5% in 2014. The country's worsening macroeconomic position has led to Moody's downgrading Pakistan's debt outlook to "negative".In 2017, Pakistan's GDP in terms of purchasing power parity crossed $1 trillion. By May 2019, the Pakistani rupee had undergone a year-on-year depreciation of 30% vis-a-vis the US Dollar.

External debt of Haiti

The external debt of Haiti is one of the main factors that has caused the country's persistent poverty. After the slaves declared themselves free and the country independent in 1804, France, with the complicity of its allies, demanded that the newly formed country pay the French government and French slaveholders the modern equivalent of US $21 billion dollars for the "theft" of the slaves' own lives and the land that they had turned into profitable sugar and coffee-producing plantations. This independence debt was financed by French banks and the American Citibank, and finally paid off in 1947.

Later, the corrupt Duvalier dynasty added to the country's debts, and is believed to have used the money to expand their power and for their personal benefits. In the early 21st century, and especially after the devastating earthquake in 2010, the World Bank and some other governments forgave the remaining parts of Haiti's debts. France forgave a more recent loan with a balance of US $77 million, but has refused to consider repaying the independence debt.

External debt of India

The external debt of India is the total debt the country owes to foreign creditors. The debtors can be the Union government, state governments, corporations or citizens of India. The debt includes money owed to private commercial banks, foreign governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank.

India's external debt data is published quarterly, with a lag of one quarter. Statistics for the first two quarters of the calendar year are compiled and published by the Reserve Bank of India. Data for the last two quarters is compiled and published by the Ministry of Finance. The Government of India also publishes an annual status report on the debt which contains detailed statistical analysis of the country's external debt position.As on 31 December 2018, India's external debt stock totaled US$ 521.2 billion, a quarter-over-quarter increase of 2.1%.

External debt of the Philippines

The external debt is the amount of debt a country owes to foreign or international creditors. The debtors can be the government, corporations or citizens of that country. The estimated Philippines foreign debt under the Aquino administration in early 2016 was US$110000.

The public debt is the total amount of debt a central government or country owes. It is also known as national debt. The debtors can be the government, corporations or citizens of that country. The estimated Philippines public debt under the Aquino administration in 2016 was $ 978000.

Public debt per person: $1,515.28

Population: 109,805,464

Public debt as % of GDP: 45.8%

Total annual debt change: 8.4%

Foreign-exchange reserves

Foreign-exchange reserves (also called forex reserves or FX reserves) is money or other assets held by a central bank or other monetary authority so that it can pay its liabilities if needed, such as the currency issued by the central bank, as well as the various bank reserves deposited with the central bank by the government and other financial institutions. Reserves are held in one or more reserve currencies, mostly the United States dollar and to a lesser extent the Euro.

Foreign trade of the United States

Foreign trade of the United States comprises the international imports and exports of the United States, one of the world's most significant economic markets. The country is among the top three global importers and exporters.

The regulation of trade is constitutionally vested in the United States Congress. After the Great Depression, the country emerged as among the most significant global trade policy-makers, and it is now a partner to a number of international trade agreements, including the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). Gross U.S. assets held by foreigners were $16.3 trillion as of the end of 2006 (over 100% of GDP).

Internal debt

Internal debt or domestic debt is the part of the total government debt in a country that is owed to lenders within the country. Internal debt's complement is external debt. Commercial banks, other financial institutions etc. constitute the sources of funds for the internal debts

Internal public debt owed by a government (money a government borrows from its citizens) is part of the country's national debt. It is a form of fiat creation of money, in which the government obtains finance not by creating it de novo, but by borrowing it. The money created is in the form of treasury securities or securities borrowed from the central bank.

These may be traded but will only rarely be spent on goods and services. In this way, the expected increase in inflation due to the increase in national wealth is lower than if the government had simply created the money de novo and increased the more liquid forms of wealth (i.e., the money supply).

Latin American debt crisis

The Latin American debt crisis (Spanish: Crisis de la deuda latinoamericana; Portuguese: Crise da dívida latino-americana) was a financial crisis that originated in the early 1980s (and for some countries starting in the 1970s), often known as "La Década Perdida", when Latin American countries reached a point where their foreign debt exceeded their earning power, and they were not able to repay it.

List of companies of Afghanistan

Afghanistan is a landlocked country located within South Asia and Central Asia.Afghanistan is a developing country, it is no longer one of the world's poorest country, however there was decades of war and lack of foreign investment. As of 2014, the nation's GDP stands at about $60.58 billion with an exchange rate of $20.31 billion, and the GDP per capita is $1,900. The country's exports totaled $2.7 billion in 2012. Its unemployment rate was reported in 2008 at about 35%. According to a 2009 report, about 42% of the population lives on less than $1 a day. The nation has less than $1.5 billion in external debt.The Afghan economy has been growing at about 10% per year in the last decade, which is due to the infusion of over $50 billion in international aid and remittances from Afghan expats. It is also due to improvements made to the transportation system and agricultural production, which is the backbone of the nation's economy.

List of companies of Venezuela

Venezuela is a federal republic located on the northern coast of South America. Oil was discovered in the early 20th century and, today, Venezuela has the world's largest known oil reserves and has been one of the world's leading exporters of oil. Previously an underdeveloped exporter of agricultural commodities such as coffee and cocoa, oil quickly came to dominate exports and government revenues. The 1980s oil glut led to an external debt crisis and a long-running economic crisis. Inflation peaked at 100% in 1996 and poverty rates rose to 66% in 1995 as (by 1998) per capita GDP fell to the same level as 1963, down a third from its 1978 peak. The recovery of oil prices in the early 2000s gave Venezuela oil funds not seen since the 1980s. A destabilized economy led to a crisis in Bolivarian Venezuela, resulting in hyperinflation, an economic depression, shortages of basic goods and drastic increases in poverty, disease, child mortality, malnutrition, and crime.

List of countries by external debt

This is a list of countries by external debt, which is the total public and private debt owed to nonresidents repayable in internationally accepted currencies, goods or services, where the public debt is the money or credit owed by any level of government, from central to local, and the private debt the money or credit owed by private households or private corporations based in the country under consideration.

For informational purposes, several non-sovereign entities are also included in this list.

Note that while a country may have a relatively large external debt (either in absolute or per capita terms) it could actually be a "net international creditor" if its external debt is less than the total of the external debt of other countries held by it. For example, although the UK has more external debt than France, it has more external assets giving it a stronger NIIP.

Net international investment position

The difference between a country's external financial assets and liabilities is its net international investment position (NIIP). A country's external debt includes both its government debt and private debt, and similarly its public and privately held (by its legal residents) external assets are also taken into account when calculating its NIIP. Note that commodities, as well as currencies tend to follow cyclical patterns, whereby they undergo significant valuation changes, of which is reflected in NIIP.

A country's international investment position (IIP) is a financial statement setting out the value and composition of that country's external financial assets and liabilities. A positive NIIP value indicates a nation is a creditor nation, while a negative value indicates it is a debtor nation.

Plata dulce

Plata dulce (meaning "easy money", literally "sweet money") is an Argentine comedy drama-historic film. It was released on July 8th, 1982 and directed by Fernando Ayala, starring Federico Luppi, Julio de Grazia and Gianni Lunadei. It received a Cóndor de Plata award for best film in 1983.

During this historic period in Argentina, many labour rights were abolished, and industry was set back, while banks started rising and external debt grew practically exponentially. The result of these economic politics (which aimed for easy money) was one of the biggest disasters in the country's history, producing a large loss of its industry and bringing large part of the population into poverty.

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