Foreign loans, as with most other types of loan contracts from banking institutions, typically have grace periods. These grace periods are provisions in the loan that permits repayments to be made after a past due date. Most grace periods require no penalties and does not result in cancellation of a loan. The length of a grace period is decided by the banking institution and interests may or may not be imposed. Most laws on loans grant an exception to the rule of penalties in the late repayment of these foreign loans. In short, grace periods offer advantages to the debtor countries by allowing them to fulfill their obligations.
Peru is one of the two Latin American countries that have the longest average grace periods, averaging 36.1 years on their external debt obligations. Past grace periods have been shorter but with Peru’s economy gaining in recent years, its foreign creditors have relaxed its grace periods on its new foreign loans. Privatizations and the country’s oil and copper are part and parcel of the bank creditors’ decisions for a long average grace period.
Paraguay is the other Latin American country that enjoys a long grace period on its external debt obligations, averaging 30.0 years. The private banking institutions see Paraguay as a good credit risk that recognize a need to contribute in the country in terms of helping it achieve energy and food security. These foreign loans help the government improve its citizen’s lives and infrastructure as well. It helps in sustainability and safeguards that are crucial in the country.
The Dominican Republic is the third country with the longest average grace period on its external debt, averaging 22.9 years. Government reform programs with tighter macroeconomic policies that led to a steady economic growth were helpful with foreign bank creditors. The country’s banking system also affects the foreign lending decisions on grace periods of external debt obligations. The credit worthiness also factors in a longer average grace period.
Costa Rica has a longer than average grace period on its external debt obligations at 22.8 years. The country has been affected by the recent global financial crisis and recovery is expected to come slowly. The International Monetary Fund (IMF) has seen a favorable outlook in the country’s economic recovery as well. Reforms will be in the reduction of fiscal deficits to control the debt burden. The health of the banking system is also an important factor in determining these issues.
Mexico has, on average, 21.9 year grace periods on its external debt obligations. The Mexican government has a longer grace period need due to its developmental needs. The accumulated debt burden of foreign loans is one consideration that affects this longer grace periods. Most of the servicing of its external debts comes from cuts in its social expenditures and revenues form public businesses. Sweeping reforms were instituted to produce positive gains that has upgraded its credit ratings.
Kazakhstan is another country that has been allowed longer than usual grace periods on its external debt obligations, with these grace periods averaging 18.0 years. Although there was a credit boom in the country, it was financed by the country’s banking institutions external borrowings which added to their external financial obligations. This has plunged the country into an international credit crisis that coupled with crumbling asset quality resulted in a macroeconomic modification in its economy.
Notable Others Being Granted Extended Grace Periods on External Debts
There are four other countries that we will look at that also enjoy longer than average grace periods on their external debts, each of which is typically granted in excess of 12 years of grace on repayments of new external debt. Morocco has a 15.6 years grace period on its external debt obligations. South Africa also enjoys a longer average grace period on its external debt obligations at 15.6 years. Romania is also on the roll call of countries that have a longer grace period on its external debt obligations at 13.6 years. Indonesia is another country that has been given the privilege of a longer grace period on its external debt obligations at 12.4 years.
Countries Where Private Creditors Give The Longest Grace Periods On Foreign Loans
|Rank||Country||Average Grace Period on New External Debt|
|3||Dominican Republic||22.9 years|
|4||Costa Rica||22.8 years|
|8||South Africa||15.6 years|