Debt sustainability basically implies the ability of a country to service all debts – internaland external on both public and private accounts- on a continuous basis without affectingadversely its prospects for growth and overall economic development. It is linked to thecredit rating and the creditworthiness of a country. However, there is no simple answer tothe question- what should be the sustainable or optimal level of debt for a country?Before discussing various measures for sustainable debt management, it is useful toclarify certain basic concepts regarding measurement of external debt.
1.1Definition of external debt
The Guide on external debt statistics jointly produced by the Bank for InternationalSettlements (BIS), Commonwealth Secretariat (CS), Eurostat, International MonetaryFund (IMF), Organisation for Economic Co-operation and Development (OECD), ParisClub Secretariat, United Nations Conference on Trade and Development (UNCTAD) andthe World Bank and published by the IMF (2003) defines “
Gross external debt, at anytime, as the amount of disbursed and outstanding contractual liabilities of residents of acountry to non-residents to repay the principal with or without interest, or to pay interest with or without principal”.
This definition is crucial for collection of data and analysis of external debt:1.
, it talks of gross external debt, which is directly related to the problem of debt service, and not net debt.2.
, for a liability to be included in external debt it must exist and must beoutstanding. It takes into account the part of the loan, which has been disbursedand remains outstanding, and does not consider the sanctioned debt, which is yetto be disbursed, or the part of the debt, which has already been repaid.3.
, it links debt with contractual agreements and thereby excludes equity participation by the non-residents, which does not contain any liability to makespecified payments.4.
, the concept of “residence” rather than “nationality” is used to define adebt transaction hereby excluding debt transaction between foreign-owned anddomestic entity within the geographical boundary of an economy. Besides, while borrowing of overseas branches of domestic entities including banks would beexcluded from external debt, borrowing from such overseas branches by domesticentities would b included as part of external debt.5.
it talks of contractual agreements, and excludes contingent liabilities. For aliability to be included in external debt, it must exist at present and must havecontractual agreement.3