2. POINTS TO BE DISCUSSED
WHAT IS DEBT-AN OVERVIEW
DEBT CRISIS-REASONS
DEBT SERVICING
DEBT PROBLEM WITH REFERENCE TO-
-DEVELOPING COUNTRIES
- INDIA
3. DEBT
“DEBT IS THE SLAVERY FOR THE FREE”.
-PUBLILIUS SYRUS
A duty or obligation to pay money, deliver goods, or
render service under an express or implied agreement.
“DEBT IS AN AMOUNT OF MONEY BORROWED BY
ONE PARTY FROM ANOTHER.”
4. INTERNATIONAL DEBT ?
Can be named as “Foreign Debt” and “External Debt”.
The portion of a country's debt that was borrowed from
foreign lenders including commercial banks, governments or
international financial institutions.
These loans, including interest, must usually be paid in the
currency in which the loan was made.
In order to earn the needed currency, the borrowing country
may sell and export goods to the lender's country.
5. ROOT CAUSE OF DEBT CRISIS
Rootedin economic policies anddevelopment choices going back to 1970s and
1980s.
6. Let’s take a look…
FIRST PERIOD(1973-1978)
• Indebtedness rose significantly from US$ 130 billion
in 1973 to US$336billion in 1978.
SECOND PERIOD(1979-1982)
• The corresponding outstanding debt increased from
336 billion US$ in 1978 to 662 billion US dollar in
1982.
• The price and volume of LDCs export fell and reduced
their export earnings.
• Reduced LDCs export earnings.
• Bankers were more willing to lend money to US than
LDCs .
7. DEBT SRVICING
Debt service is the cash that is required for a particular time
period to cover the repayment of interest and principal on a
debt.
DEBT SERVICE RATIO:-
Ratio of debt service payments (principal + interest) of a
country to that country’s export earnings.
A country's international finances are healthier when this
ratio is low.
The ratio is between 0 and 20% for most countries.
10. Losses of financial resources by developing countries have
been almost double the inflows of new financial resources
since the financial crisis.
Lost resources have been close to or above 10% of GDP for
developing countries as a whole since 2008 – meaning that for
every $100 the country makes, $10 are lost, flowing out of the
country.
Domestic resources are far larger than all external financing
sources for developing countries, with domestic investment
reaching over 33% of GDP and government revenue over 18%
in 2012.
11. DEBT PROBLEM OF DEVELOPING
COUNTRIES
• Illiquidity and insolvency :-May vary from acute balance-of-
payments difficulties requiring immediate action to longer-
term situations relating to structural, financial and transfer-of-
resources problems requiring appropriate longer-term
measures.
DEDEBT OF
DEVELOPING
COUNTRIES
MIDDLE
INCOME
COUNTRIES
LOW
INCOME
COUNTRIES
12. 2016 INTERNATIONAL DEBT STASTICS
NET
DEBT
LOW AND
MIDDLE
INCOME
INCOME
CONT.
$464 billion
in 2014
DECREASE OF
18% AS
COMPARABLE
TO 2013
Ratio of external debt to GNI averaged 22
percent in 2014, and the ratio of external
debt to exports averaged 79 percent.
International reserves stood at 114 percent
of external debt stocks.
Net equity inflows, $668 billion, were
7 percent higher than the 2013 level
propelled by a 4 percent increase in
net foreign direct investment and
robust portfolio equity flows, which
were up 29 percent.
13. Something more….
• Data in the World Bank's global development finance 2012 report shows
total external debt stocks owed by developing countries increased by
$437bn over 12 months to stand at $4tn at the end of 2010, the latest
period for which data is available.
• Many poor countries in Asia and Latin America (for example, Jamaica
and El Salvador) did not have debts written off because their income per
capita was too high to meet the IMF and World Bank criteria. Others,
such as Bangladesh, did not qualify for cancellation because their debts
were seen as sustainable.
• Ethiopia's public sector debt is almost back at pre-MDRI levels, with
China becoming Ethiopia's third biggest lender (11% of new loans)
behind the World Bank (34.3%) and IMF (11.5%), according to the AEO
report.
14. • Ghana was also highlighted in the report. It used the space created by
debt reductions to borrow more money on the international markets, at
interest rates 10 times higher than institutions such as those imposed by
the World Bank and African Development Bank.
• The IMF highlights 12 countries it says are at high risk of not being able to
pay their debts: Afghanistan, Burkina Faso, Burundi, the Democratic
Republic of the Congo, Djibouti, Gambia, Grenada, Haiti, Kiribati, Laos,
Maldives, São Tomé and Príncipe, Tajikistan, Tonga and Yemen.
15. DEBT SERVICING PROBLEM IN INDIA
Unmanageable
accumulation of debt
Decrease in volume of OIL
imports
Increase in trade credits
16. India’s external debt at end-March 2015 was placed at US$ 475.8 billion recording an
increase of US$ 29.5 billion (6.6 per cent) over its level at end-March 2014.
Higher debt service payments during 2014-15 relative to the preceding year, were
largely on account of higher repayments of ECBs during the year.
17. Rising interest rates in the domestic market are encouraging large firms in the
Indian corporate sector to resort to foreign borrowing to finance domestic
expenditures. Though still incipient, this is a tendency that should give cause for
concern.
