Economics

Countries With The Best External Debt To GNI Ratios

Turkmenistan's Gross National Income exceeds its short term debt balance by 200 to 1.

External Debt is the loan a country has taken from foreign governments, international financial institutions, and foreign commercial banks. The repayment comes from the earnings made through the export of goods to the creditor country in the same currency loaned. Payments are made by interest payments as cost of borrowing while payments made by principal payments are made to reduce the principal amount outstanding.

A country’s ability to pay back its external debt is influenced by its exports but may also be influenced by external and internal factors such as a recession, war, civil strife, interest rates, and other uncertainties. These geopolitical and socioeconomic conditions change occasionally that affects a country’s financial attitude towards securing foreign loans and refinancing older obligations.

A Measure of Sustainability

The best external debt to Gross National Income (GNI) ratios are often explained by economists as the sustainability of a country’s foreign debt. This translates to a country’s ability to pay interest on its debt and still have a steady economic growth. External debt to GNI ratios are used to multiply a country’s gains and losses. A low external debt to GNI ratio means a country has enough export of goods and services to repay debts without making more loans.

Countries With Low External Debt Relative to Gross National Income

According to the IMF and the World Bank, external debt sustainability depends on a country’s ability to “bring the net present value (NPV) of external public debt down to around 150 percent of a country’s exports or 250 percent of a country’s revenues.” Turkmenistan's Gross National Income exceeds its short term debt balance by 200 to 1. Turkmenistan tops the list of best external debt to GNI ratios with a low value of 0.5% to its GNI. Its economy slowed down but privatization of its economy has helped in its short term debt balance. It has improved its oil and gas production with new investments. Second is Algeria with a low external debt ratio to its GNI at 0.7% value. Its oil and gas export revenues and foreign exchange reserves were instrumental in a lower debt ratio. Third is China with a low external debt ratio to its GNI at 0.8% value. Its fixed asset investments and industrial productions has helped maintain it slow debt ratio. Fourth is Nigeria with a low external debt ratio to its GNI at 1.2% value. Its oil production has helped in its low debt ratio. Fifth is India with a low external debt ratio to its GNI at 5.3% value. Its foreign exchange reserves and exports have helped in its low debt ratio. Sixth is Uzbekistan with a low external debt ratio to its GNI at 5.8% value. Its foreign exchange reserves, above average economic growth, and low government debt all have helped its low debt ratio. Seventh is Brazil with a low external debt ratio to its GNI at 6.6% value. Its trade surplus helped its low debt ratio. Eighth is Kazakhstan with a low external debt ratio to its GNI at 7.2% value. Its improving industrial production has helped its low debt ratio. Ninth is Azerbaijan with a low external debt ratio to its GNI at 7.6% value. Its infrastructure spending has been cut due to oil price drop. Tenth is Solomon Islands with a low external debt ratio to its GNI at 7.7% value. Its service sector and agriculture production have helped its low debt ratio.

Countries With The Best External Debt To GNI Ratios

RankCountryShort Term External Debt Relative to GNI
1Turkmenistan0.5%
2Algeria0.7%
3China0.8%
4Nigeria1.2%
5India5.3%
6Uzbekistan5.8%
7Brazil6.6%
8Kazakhstan7.2%
9Azerbaijan7.6%
10Solomon Islands7.7%

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