The Changing External Debt Situation in the Asian and Pacific Region

Abstract

In recent years, the key debt indicators of most developing countries in the Asian and Pacific region have changed dramatically, with their debt-service ratios rising from the low teens well into the twenties and thirties and beyond. Along with declining terms of trade and capital flight, rising debt-service payments reduced the resources available for domestic absorption per unit of foreign exchange earned. Concurrently, the inflow of fresh capital slowed down considerably, especially that portion coming from direct foreign investment. If current trends remain unchecked, liquidity and solvency problems may lie ahead for several Asian and Pacific developing countries. They may be forced to restrict additional foreign borrowing at the expense of investment and growth. As their development efforts are being constrained by a considerable debt overhang, their living standards are bound to be affected.