External Debt Problem Research Articles

Determinants of External Debt in Developing Countries: The Case of Algeria

Background: Developing countries seek to eliminate external debt problems towards financial obligations with a view of alleviating the debt burden to avert economic volatility in the context of debt accumulation. Since the beginning of the 1970s, developing countries, including Algeria, have experienced rapid growth in external debt accumulation in an effort to finance domestic deficits and not enter into economic recession. All these reasons ignore the topic of external debt as an interesting topic of study. This study attempts to analyse and measure some of Algeria's external debt indicators during the study period. Purpose: This research paper focuses on identifying the determinants of external debt in Algeria. Methods: The study utilized the autoregressive distributed lag (ARDL) model and cointegration test to analyze both short- and long-term relationships among the study variables from 1990 to 2021. Results: The findings show that the exchange rate and government spending significantly and positively impact external debt in the long run, whereas GDP per capita and foreign direct investment are significantly negatively correlated with external debt. The short-term results align with those of the long term. Conclusions: The paper advises that the Algerian government and other developing countries should assess their foreign debts, rationalize government spending, diversify their economies, and enhance their investment climates.

REGRESSIVE ANALYSIS AND FORECAST OF STATE DEBT

Sophio Beridze 
 E-mail: sopho1982@hotmail.com 
 PhD Student, Batumi Shota Rustaveli State University 
 Batumi, Georgia
 https://orcid.org/0009-0002-7264-2873
 
 Lela Oniani 
 E-mail: lela.oniani@bsu.edu.ge 
 Associate Professor, Batumi Shota Rustaveli State University 
 Batumi, Georgia
 https://orcid.org/0000-0002-5960-4015
 Abstract: Actuality of the topic is caused by the role of the debt as financial instrument, as in the sphere of prosperity of the country, as well in its maintenance. State debt plays an important role in the macro-economic system of any Government. Formation of debt, .service and its covering, have a great influence on financial situation of the state, on the movement of money streams, investing climate, establishing international cooperation and its future development between the states. Actuality of the problem of external state debt was increased due to the fact that it is directly connected to the economic safety of the state.
 The goal of the article -originating/growth of state debt, despite of its burden is inevitable. If the level of income and employment more or less increase proportionally among with state debt, burden can be bearable and will not need concern. Percentage indicator of debt can not determine the burden of debt. Main determiner of the debt burden is: Annual capacity of debt service, reflection of state debt in economy, face of tax system. The aim of the article is to forecast the scales of factors, which influence on external state debt and implementation of main principles for effective management. In order to achieve goals which are set, there is a model to foresee scales of factors,which influence on state external debt.
 Methodology/approach: in order to learn and foresee existing condition of state debt, first of all,there were selected valid factors, which mostly effect on state external debt rather than other factors. Research took place by the building up regressive model, checking its quality and using forecasting models.
 Practical value/Implications: the practical significance of the paper is that its statements and conclusions are oriented on solving problems within the optimization of state external debt dynamic. Learning and researching about the influence of state debt on the stability of the state economy, will help conductors of economic policy to plan the right measures to avoid debt crisis. For this purpose:
 - We revealed valid factors on the stability of debt according to regressive analysis, among which the most important are the quality of debt service, deficiency of budget and level of employment.
 -We have made forecasts about the stability of state external debt and about the factors which influence them till the 2030.

Current state and prospects of resolution of public external debt problem in Russia

The article provides a comprehensive analysis of public external debt problem in Russia in period of 1991–2021. The author highlights and characterizes five stages of the debt problem development. A distinctive feature of the current stage (2014 — present) is the presence of sanctions risk, which remains one of the most important factor of the Russian loan portfolio. The narrowing of opportunities for Russian public debt is likely to increase Russia’s dependence on domestic financing which is already high. It is established that external corporate debt has been determining the dynamics and volume of Russian external debt since the mid-2000s. It is revealed that from the point of view of debt sustainability of country, Russian economy is in more favourable position than many developed countries in the grip of debt crisis. However, there are risks to the country’s external debt sustainability, and they lie in the corporate sector. Special attention is paid to the fact that a significant part of corporate debt is formed by the debt of quasi-sovereign organizations. At the end of the article, a plan on replacement of external sources of loans with domestic ones is proposed. During implementation of this plan, it is necessary to take into account that the loans from companies and banks from classic offshores and from countries involved in offshore financial schemes form a significant part of corporate debt. Consequently, these may be ordinary intra-corporate financial transactions, and the real corporate external debt is much lower and requires less financial resources to settle it.

External Debt-Economic Growth Nexus: The Sierra Leonean Case (1973-2021)

The study investigates the nexus between external debt and economic growth in Sierra Leone for the period spanning between 1973 and 2021. In many developing countries, huge external indebtedness has been seen as a strong break on the road to economic growth and development. Indeed, the study focuses on both external and internal factors that are responsible for the external debt problem in Sierra Leone. Data employed in this study are secondary and were collected from various sources including the Central Bank of Sierra Leone and the Ministry of Finance. Key macroeconomic variables such as external debt to Gross Domestic Product (GDP) ratio, external debt service to export earnings ratio and terms of trade were specified in the model and tested for stationarity using unit root tests. The study also employed the ordinary least square (OLS) technique for the purpose of estimating the relevant parameters of the model. Various diagnostic tests are carried out to appraise the robustness of the estimated growth equation using appropriate econometric criteria. The study empirically reveals a negative nexus between external debt and economic growth in Sierra Leone for the period under study signifying that debt accumulation impacts adversely on the country’s long-run growth trajectory which confirms debt “overhang” problem in Sierra Leone. This is clearly evident in the coefficients of the variables representing debt as a ratio of GDP, debt service as a ratio of export earning and terms of trade. The study, therefore, proffers certain recommendations in line with the findings.

External Debt Problem in the European Union

The paper's relevance is substantiated by the fact that today a rapid growth of external debt of the most developed countries of the world (including European Union (EU) countries) is one of the most acute problems of the modern world economy and global finance. The paper aims to assess the degree of the external debt burden of various EU countries and evaluate the prospects of solving external debt problems in the EU. The article focuses on dynamics, composition, and specifics shaping the EU countries' external debt based on comparative, economic, statistical, and graphical analysis. Special attention we paid to the analysis of specifics of the EU countries' sovereign external debt composition connected with the acute problem of the rapid growth of public debt in general. The paper examines the ratio of public external and internal debt in various EU countries. It determines the EU particular countries where public external debt is shaping based on either cross-border or domestic model. The research results reveal a high degree of dependence of the EU economy on international debt finance. Gross external debt and sovereign external debt of the EU countries are still growing, and its distribution among various member states is very uneven. The structural imbalance of the EU countries' net external debt has also been revealed: the number of net borrowers is double that of net lenders. According to the basic external debt sustainability indicators, some EU countries are in a pretty tricky situation and entirely depend on the possibility of external debt refinancing.

The USA external debt problem: is there a solution?

The author focuses on the analysis of dynamics, trends and specifics of the current composition of the external debt of the USA using statistical data compiled by the international financial institutions. The paper contains an analysis of the US external debt sustainability and highlights the prospects for the external debt problem solution. The author concludes that currently the USA is subject to a high degree of external debt risk and does not have sufficient financial resources to service its external debt. In case non-residents discontinue refinancing current external indebtedness, USA may face a sovereign default.

EXTERNAL GOVERNMENT DEBT MANAGEMENT OF UKRAINE IN CONDITIONS OF SOCIAL AND ECONOMIC AND PANDEMIC SHOCKS

Introduction. The consequences of the COVID-19 pandemic on macroeconomic dynamics and the state of external public debt are analised. The main reasons for the growth of the State Budget deficit of Ukraine are identified and the need to increase the efficiency of the external public debt management policy in the context of minimizing the budget deficit is proved. Emphasis is placed on the situational and imbalance of Ukraine’s external public debt management policy, which is due to the lack of the Economic Development Strategy of Ukraine and the Government’s program of activities for 2020. It is substantiated that the lack of clear strategic goals of economic development of the state and adherence to such a strategy has led to an increase in the cost of servicing external pu blic debt, increasing the cost of attracting it and reducing the maturity. It is also proved that the lack of strategy together with the low level of fiscal, debt and monetary policy coherence are the main reasons for inefficient conversion of external public debt, as the main amounts of external government borrowing are not used to finance economic development, but to finance state budget expenditures and to repay old debts. The purpose of to the article is to study the theoretical and practical aspects of debt policy in the context of the COVID-19 pandemic in order to justify a new paradigm of Ukraine’s external public debt management policy. Results. Based on the analysis of major macroeconomic trends in Ukraine and identifying external debt problems, the latest paradigm of external public debt management policy is proposed, the essence of which is to subordinate debt policy to tactical and strategic goals of the national economy budget, debt and monetary policy, as well as in achieving effective conversion of external government borrowing to stimulate economic development. It is proposed to use a program-targeted method of external public debt management policy, which involves raising funds from international organizations exclusively to finance specific government programs. Perspectives. It is necessary to increase the efficiency of conversion of external government loans to finance capital investments from the State budget, which will use the foreign debt potential to stimulate Ukraine’s economic development.

ПРОБЛЕМА ЗОВНІШНЬОЇ ЗАБОРГОВАНОСТІ У КРАЇНАХ ЄС

This article provides the review of the problem of external debt of the countries of the European Union. Modern forms of external borrowing are considered, as well as the reasons for the external debt of countries in general and the reasons that became the beginning of the debt crisis for the EU countries. The article provides the main theoretical options for overcoming this problem, both in the form of measures to overcome the problem of external debt, common ways to overcome the problem of public debt, and in the form of the main policy directions to overcome this problem. The data show a deterioration of the EU's position in the international arena, as well as the emergence of debt economic problems of the European Union, which adversely affects the overall situation in the world.The public debts of Greece, Spain, Ireland and Portugal need to be refinanced, measures need to be taken to improve the situation, but over the years the external debts of the countries do not tend to decrease, which has a negative impact on total external debt, a possible external debt crisis.The article also provides data and statistics on the EU external debt for the period 2013-2019, the ranking among the EU countries with the largest external debt and its amounts, the structure of the external public debt of the EU for the period 2017 - 2019. This article also discusses the main consequences of accumulation of external debt.

Debt Servicing of Pakistan: Capitalising on Chinese Investment

Pakistan has several times turned to external sources for development and economic restructuring purposes. The amount of debt Pakistan has accumulated over the years is now becoming a serious challenge. Moreover, Pakistan has been unable to utilise the borrowed resources efficiently which has placed the economy under financial stress. This paper will examine how the China-Pakistan Economic Corridor (CPEC) can offer support in overcoming the mounting external debt problem of the country. It will look at various aspects of CPEC which can help Pakistan generate foreign exchange earnings and reduce import costs. It will also discuss how Pakistan can reduce its dependence on foreign debt and become a more resilient economy. This paper also explores the limitations of CPEC in helping the government overcome its debt crisis and offers recommendations for utilising the Chinese investment to address debt-obligation challenges faced by Pakistan. It argues that the government must apply a comprehensive strategy for servicing its external debt.

The external debt problem goes global: its composition, proрspects and trends

The author pays special attention to the global nature of the external debt problem which becomes one of the most acute financial and economic problems. In the author’s opinion, a rapid growth of the majority of the countries’ external debt may result in a series of sovereign external debt defaults, which will trigger a new and stronger global financial and economic crisis.

The External Debt Problem of Developing Countries

The article is aimed at researching the problem of external debt of developing countries. The current status of external debt of developing countries is analyzed. The growing demand for investors, combined with the growing number of firms looking to take on large debts, has led to a deterioration in underwriting standards and the credit quality of such loans. The grounded relevance of the use of borrowing resources today is not necessarily a bad thing, even on the contrary – it is one of the most effective ways to stimulate the growth of the economy. When these resources are used targeted and efficiently, they generate more revenue for the borrower. But this gets worse when loans are used inefficiently, that is when they stimulate excessive consumption rather than bring in additional benefits. The author concluded that the reasons for the current fears began long before the crisis of 2008. A debt is not a bad instrument if it is used to finance investments that make a profit or create assets that are worth more than the debt itself. It’s hard to find such data, but if we trace the tendency of global growth and compare it to the tendency of debt accumulation, we’ll see that doesn’t happen. Therefore, it seems that the situation is out of control, i.e., debts continue to accumulate, excessive accumulation of loan portfolios increases, and low interest rates imply the survival of companies and countries. This leads to liquid risks with the expiration of the debt repayment period. Governments have been addicted to increased loans – none of the more developed economies could cope with a possible tightening of monetary policy. This means that when the time comes to severely lower the credit shoulder, economic growth will suffer. Central banks, in turn, find themselves trapped because maintaining such loose monetary policy and a high credit shoulder poses a risk of forming the price bubbles. It is determined that while rates remain at current low levels, investors will be looking for a bigger return, which means taking more risk – this, in turn, could trigger the «butterfly effect», causing destruction to the entire financial system.

Зовнішній борг України: оцінювання, моделювання та прогнозування.

The article highlights the problem of Ukraine's external debt, its impact on the financial condition of the country. The effect of gross domestic product on the level of external debt is investigated. Structural shifts, trends and patterns of changes in external debt have been revealed. A paired regression model of dependence is constructed and the critical point of GDP is calculated. The direction of further changes in the level of the state external debt has been determined.

External Debt Problem and Global Financial Architecture

Liberalisation of the global financial market in 90-s last century and early in XXI has resulted in increasing dependence of many countries (both advanced and developing ones) on external financing and significant growth of the sovereign external debts that has become a real threat to the stable development of the world economy. The paper is focusing on the problem of growing external debt of many countries. It has an analysis of the methods aimed at settling and managing the external debt by the state authorities. I paid special attention to the problem of predicting the possibility of the sovereign external debt default. The author concludes that an aggravation of the global external debt problem may become one of the main triggers of a deep financial and economic crisis not only in separate countries or a group of related countries but on a global scale.

External Debt Management Techniques: An Evaluation Of The Debt Conversion Programme On Nigeria Economy

The study evaluated the various debt conversion programme used by the Federal Government of Nigeria to manage the nation’s external debt. It examines the problems and prospects of management techniques with a view to improving on them or possibly suggests new techniques which might be helpful in solving the external debt problem. Therefore, the research is focused on the external debt management techniques in Nigeria, with emphasis on the efforts of the central Bank of Nigeria (CBN) and the federal ministry of finance (FMF). Generally, the indebtedness of the country becomes a problem when the burden of servicing the debt becomes so heavy and unbearable that it imposes intolerable constraints on the economy and on the development efforts of the authorities.Managing the debt stock without stultifying growth has always has always been the headache of economic planners in Nigeria and other developing countries The pupation of this study constitutes the Central Bank of Nigeria (CBN) and the Federal Ministry of Finance (FMF) records and personnel, the sample used is the representative sample. This is because the sample reflects the conditions existing in the population. A total of 20 top management personnel of both the CBN and FMF including 5 top management personnel of the Debt Conversion Committee (DCC) were sampled. In this study, two types of data were collected that is, the secondary data and the primary data. In designing the instrument, care has been taken to ensure its effectiveness, the validity of the research questions were established found reliable at r = 0.82. The result showed that the management of Nigeria’s external debt via debt conversion programme is effective( χ2cal 6.545 > χ2tab value of 1.635 ;df=4; =0.05).Also, the Nigeria’s debt conversion programme is realistic. (χ2cal 4.655 > χ2tab 1.635 ;df=4; =0.05). However, the study revealed that the debt conversion programme is not the final solution to Nigeria’s external debt problems. (χ2cal 4.655 > χ2tab 1.635 ; df=4; =0.05). On the basis of the findings, it is therefore recommended that the debt management should be part of the macroeconomic policies of the month. The nation need not wait until there is a debt crisis before embarking on debt management. Also, accurate information on external debts should be sourced as this aids its efficient management on a day-to-day basis and external borrowing strategies in the planning framework. DOI: 10.5901/mjss.2013.v4n10p216

Assessment of the efficiency of Croatia compared to other European countries using data envelopment analysis with application of window analysis

Economic growth in the world today is extremely uneven. In the last decade we have witnessed a higher growth rates in industrial countries and in countries in transition. However, their growth is mostly based on external borrowing, creating a problem of higher external debt and budget deficit. As the growth rate of external debt exceeds the one of GDP, in the long run, countries will face problems of indebtedness and unsustainable growth. This paper analyses the model of economic growth in three different years in order to determine the significant growth factors in Croatia and EU countries plus Turkey and Switzerland. Countries that have applied efficient growth model and those that have not are distinguished using the data envelopment analysis (DEA). According to obtained results Croatia had the worst ranking in the achieved efficiency.

A Fate Worse than Debt: An Alternative View of the Right to Development and its Relevance in the External Debt Problem of Developing Countries

The external debt problem of developing countries is a lacuna in public international law. An author has observed that uncertainties and questions about external debts “remain ignored by treaty law or have not been regulated by contracts and are probably not yet governed by customary law.” There is currently no multilateral treaty that specifically governs the situation of a developing country plagued by simultaneous debt repayments. Neither is a typical international loan contract useful in looking for fair and equitable solutions to the problems occasioned by external debts. This thesis aims to contribute in filling up this legal void. The main controversy in this thesis involves a collision between the principle of pacta sunt servanda as applied in international loan contracts and a proposed legal principle that may be employed to counter the ill-effects upon a debtor country of a high level of external indebtedness. This thesis will propose an alternative view of the “right to development” which is supported by certain legal norms whose bases are well-established in public international law. It will argue that the right to development can be invoked as a legal shield to protect debtor countries against the adverse repercussions occasioned by debt-related arrangements and policies in the international plane. This alternative view will be put into an empirical application within the backdrop of the external debt problem of the developing countries. Is the right to development applicable in the specific context of creditor-debtor relation between states? How can it be applied vis-a-vis the main problems occasioned by a huge external indebtedness? The area of public external debts is one of the many international settings where the cards are stacked, so to speak, against the debtor countries. This thesis will show how a high level of indebtedness adversely impacts a debtor country in two major ways. First, through the use of policy “conditionalities,” the present international debt relief mechanisms significantly limit a debtor country’s prerogative in managing its own process of economic development. And second, the creditors’ staunch claim to be repaid and the debtor country’s lack of choice but to heed such a claim result in the latter’s inability to perform its treaty obligations to realise the economic, social and cultural rights of its people. This thesis will argue that both are legally incompatible with the right to development, and both ought to be addressed by a proposed debt restructuring mechanism for debtor countries that genuinely respects and promotes this right. Contact author at Noel.Villaroman@monash.edu.

Management and sustainability of external debt: A focus on the emerging economies of Africa

African countries have had the notoriety of being characterized by unsustainable external debt. Despite several announced intents by world development agencies to reverse this trend, there appears to be only minimal progress. This paper points to failure to determine appropriate levels of sustainable external debt, inadequate effective governance infrastructure, and ineffective management of external shocks, as important reasons why Africa's external debt problems have persisted. We derive African-relevant thresholds for sustainable external debt, and highlight quantifiable improvements African countries can experience if they were to adopt better governance infrastructures and effective management of external shocks.

External Debts, Growth and Peace in the Sudan: Some Serious Challenges Facing the Country in the Post-Conflict Era

This paper attempts to examine the impacts of the extent of the external debt problem and its sustainability on the government’s efforts to reduce poverty and sustain growth and peace in the Sudan. It starts with defining the concepts of external debt and types of loans and then examines the details of the external debt profile, magnitude, composition and sources by creditors. It also lists the causes (both external and internal) of the debt problem in the Sudan. A major section of this paper is devoted to investigate the relationship between growth, debt and peace in the Sudan in order to generate some policy based recommendations to deal with the issues of poverty and growth in the country. The remaining sections discuss various issues pertaining to debt burden indicators, debt sustainability, the Sudan debt relief strategy for solving the problem of external debt in the 1980s, and the new borrowing and investment policies. The final section gives some conclusions and policy recommendations.

Monetární teorie cyklu, dluhový problém a finanční krize

In attempts to explain the mechanism of a financial crisis of the third generation, the basic problem is to specify the basic causes of its emergence. In the text of the paper we have formulated a hypothesis saying that the basic cause of the emergence of a systemic financial crisis of the Asian type is an overall unsound indebtedness, initiated - using the terminology of a monetary theory of cycles - by malinvestment, caused by an excessive credit boom. If these investments are financed through credits, their systematic liquidation leads not only to recession, but also to the development of unsound indebtedness and to a massive credit non-reimbursement. If the credits are granted in the local currency, there develops an internal debt problem, a banking crisis and subsequently a monetary crisis. If the credits are given in foreign currencies, there develops an external debt problem, a monetary crisis and subsequently a banking crisis. Debt, banking and monetary problems are mutually amplified and lead to the emergence of a systemic financial crisis.

External debt in developing economies: assessment and policy issues

More than one decade after the external debt restructuring (the Brady Plan), a great amount of literature has been published concerning the balance sheet factors in developing countries. The staff of international multilateral institutions joined with reputable academics in this great controversy. The external debt problem of the developing countries is back and once more reflections on its cause and on policy recommendations are analytically distinct. Our main task is to reflect on the recent external debt dynamics and assess how this debt has evolved. Our findings indicate that the susceptibility of some developing countries to default is associated with global imbalance, that is, the way they borrow.