Foreign loans (or external debt ) is the total debt held by the state to foreign creditors, supplemented by internal debt held by domestic lenders. The debtor can be a government, company or citizen of that country. Such debt covers money paid to private commercial banks, other governments, or international financial institutions such as the International Monetary Fund (IMF) and the World Bank. Note that the use of gross liability numbers greatly disrupts the ratio for countries that have large financial centers such as the UK because of the role of London as a financial capital. Contrast with nonprofit international investment positions.
Video External debt
Definisi
According to the International Monetary Fund, "Gross external debt is the sum, at any given time, the contractual and extraordinary contractual obligations of a resident of a country to a non-resident to pay principal, with or without interest, or to pay interest, with or without the principal".
In this definition, the IMF defines the following key elements:
- Current and actual liabilities
- Debt obligations include arrears of both principal and interest.
- Principles and flowers
- When borrowing costs are paid on a regular basis, as is the case, it is known as interest payments. All other payments of economic value by the debtor to the creditor that reduces 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 principal repayment time of the principal and/or interest needs to be known in order for the liabilities to be classified as debt.
- Residence
- To qualify as an external debt, debt obligations must be paid by residents to non-residents. The place of residence is determined by the place where the debtor and the creditor have their center of economic interest - usually, where they are usually located - and not by virtue of their nationality.
- Current and not contingent
- Contingent liabilities are not included in the definition of external debt. This is defined as an arrangement in which one or more conditions must be met before financial transactions occur. However, from the perspective of understanding vulnerability, there is an analytical interest in the potential impact of contingent liabilities on the economy and on specific institutional sectors, such as government.
Generally, external debt is classified into four heads:
- (1) public and public debt is assured;
- (2) unsecured personal credit;
- (3) central bank deposits; and
- (4) loans due to the IMF.
However, proper care varies from country to country. For example, while Egypt maintains this four-head classification, in India it is classified in seven heads:
- (a) Multilateral,
- (b) Bilateral,
- (c) IMF loan,
- (d) Trade credit,
- (e) Commercial loans,
- (f) Non-Indians and Indians,
- (g) Rupee Debt, and
- (h) NPR debt.
Maps External debt
Foreign debt debt
Ongoing debt is the level of debt that enables the debtor country to fulfill its current and full debt obligations in full, without the aid of additional debt or rescheduling, avoiding the accumulation of arrears, while allowing an acceptable rate of economic growth.
Foreign debt analysis is generally conducted in the context of medium-term scenarios. This scenario is a numerical evaluation that takes into account the expected behavior of economic variables and other factors to determine the conditions under which debt and other indicators will stabilize at a reasonable level, the main risk to the economy, and the need and scope for policy adjustment. In this analysis, macroeconomic uncertainties, such as the outlook for current transactions, and policy uncertainty, such as fiscal policy, tend to dominate the medium-term outlook.
The World Bank and the IMF argue that "a country can be said to achieve sustainability of external debt if it can fulfill its current and full debt obligations of its current foreign debt, without the aid of debt rescheduling or accumulated arrears and without sacrificing growth". According to these two institutions, "bringing the current net worth (NPV) of external public debt down to about 150 percent of a country's exports or 250 percent of the country's revenues" will help eliminate this "critical barrier to long-term debt sustainability". High foreign debt is believed to be harmful to the economy.
Indicators
There are various indicators to determine the level of sustainable external debt. Although each has its own advantages and peculiarities to deal with certain situations, there is no unanimous opinion among economists as the only indicator. These indicators are primarily in the nature of the ratio - that is, the comparison between the two heads and the relationships above it and thereby facilitate policymakers in their external debt management practices. These indicators can be considered as a measure of the "solvency" of a country in which they consider the stock of debt at any given time in relation to the ability of the state to generate resources to repay the outstanding balance.
Examples of debt load indicators include
- (a) Debt-to-GDP ratio,
- (b) the ratio of foreign debt to exports,
- (c) government debt to current fiscal revenue ratio, etc.
This set of indicators also includes outstanding debt structures, including:
- (d) The distribution of foreign debt,
- (e) Short-term debt, and
- (f) Concessionary debt ("loan with original grant element 25 percent or more") in total debt stock.
The second set of indicators focuses on the short-term liquidity requirements of the country with respect to its debt repayment obligations. These indicators are not only useful early warning signs of debt service problems, but also highlight the impact of inter-temporal exchanges arising from past loan decisions. Examples of liquidity monitoring indicators include
- (a) Debt service to GDP ratio,
- (b) Foreign debt service to export ratio,
- (c) Government debt service with current fiscal revenue ratio
The last indicator is more forward, as they show how the debt burden will evolve over time, given the current stock of data and the average interest rate. The dynamic ratio shows how the debt burden ratio will change if there is no new payment or disbursement, which indicates the stability of the debt burden. An example of a dynamic ratio is the ratio of the average interest rate on the outstanding debt to the nominal GDP growth rate.
See also
- List of countries with external debt
- Third world debt
- Unusual debts
- Public debt
- Eurodad
- Jubilee Debt Campaign
- Net international investment position
- Default default
- Capital Accumulation
Note
External links
- IMF National Summary Data Pages (see "External Debt" under "External Sector")
- IMF World Economic Outlook (WEO) - September 2003 - Public Debt in Emerging Markets
- List of external debt in CIA World Factbook
- The IMF Guide to Understanding Overseas Debt
- US - Foreign Debt viz savings rate Comparing foreign debt viz Savings rate - since 1995 (which is the two components that finance Fiscal Policy)
- The European Network on Debt and Development Reports, news and links on external debt.
Source of the article : Wikipedia
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