External debt, or foreign debt, is made up of the total debt a country owes to its foreign investors. Debtors can include the government, national corporations and private citizens of that country. Different countries employ a variety of methods to address their external debt. Some, like Norway, Hong Kong, and Switzerland, lend enough money to other countries to offset the amount of their external debt. Others have developed long-term debt repayment programs over the years, with varying levels of success. The two primary indicators of a country's ability to repay external debt are its ratio of external debt to exports and the ratio of foreign reserves to short-term external debt.The countries with the most successful debt repayment strategies may surprise you!
Countries with the Highest Annual External Long-Term Debt Repayments
India is the clear leader with $92,014,974,777 USD repaid annually. This fact is due in part to the country's current progress towards economic reform and the reduction of trade barriers with the European Union. Projects have recently begun to eliminate the country's debt to Iran by increasing energy ties and connectivity with Iran, Afghanistan, and Central Asia.
Brazil has been able to reduce its debt by $59,119,943,000 USD annually. The country has long relied on its high interest rates to attract and retain investors.
China ranks 11th in overall external debt. However, China ranks third in its ability to repay external debt, with roughly $51,731,531,000 USD repaid annually. This figure is due to its stable 30-40% ratio of external debt to exports (much lower than the international average), and the fact that its ratio of foreign reserves to short-term external debt is six times higher than the international average.
Turkey has been able to pay $51,271,006,000 USD annually towards its external debt. This figure is due in part due to economic reforms made over the past three decades, and the change in status from the debtor to creditor with the International Monetary Fund.
Mexico currently makes an external long-term debt repayment of $47,568,772,000 USD per year. This figure is due in part to economic and fiscal reforms, a more realistic GDP forecast and the increase in tax revenues outside of the oil industry. The IEPS special tax on gasoline is particularly versatile, acting as a subsidy when energy prices are high, and as a tax when prices are low.
Indonesia pays an average of $45,721,947,000 annually towards its external debt. The ratio of debt to GDP has shown a significant improvement in the past 20 years, falling from over 150% in 1998 to 28% in 2013. Indonesia's external debt to exports ratio has declined dramatically: from 179.7% in 2004 to 97.4% in 2011. This figure is due in part to the Indonesian government's pragmatic fiscal policy and the establishment of rules that limits the upper level of debt.
Other countries with high annual external long-term debt repayments include: Kazakhstan ($30,833,550,000), Romania ($18,427,924,000), Thailand ($14,410,231,000), Ukraine ($13,916,201,000), Colombia ($12,658,087,000) and Malaysia ($12,658,087,000).
Impact on Global Economy
Not all countries are as successful at addressing their long-term, external debt. A debt crisis can result when a country with a weak economy cannot make, produce, and sell goods, or make a profitable return on its investments. This circumstance can cause countries to get caught up in a vicious cycle, unable to spend enough government money infrastructure, education or healthcare to boost productivity or the national economy Debt cancellation for developing nations is a subject that continues to be hotly debated.