A country's gross external debt (or foreign debt) is the liabilities that are owed to nonresidents by residents. The debtors can be governments, corporations or citizens. 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

thumb|upright=1.6|Map of countries by external debt as a percentage of [[GDP]]thumb|upright=1.6|Total debt service as % of exports of goods, services and primary income in 2017

thumb|upright=1.6|Share of U.S. gross external debt by debtors

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.

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.

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". High external debt is believed to be harmful for the economy.

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") in the total debt stock.

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.

See also

  • Eurodad
  • Jubilee Debt Coalition
  • List of countries by external debt
  • Net international investment position
  • Odious debt
  • Government debt
  • Sovereign default
  • The Accumulation of Capital
  • Debt of developing countries
  • Global debt

Notes

  • IMF National Summary Data Pages (see "External Debt" under "External Sector")
  • IMF World Economic Outlook (WEO)-- September 2003 -- Public Debt in Emerging Markets
  • External debt list in CIA World Factbook
  • IMF Guide to understanding External Debt
  • European Network on Debt and Development reports, news and links on external debt.
  • Comparison of external debt by country