What does foreign debt mean?
Table of Contents
What does foreign debt mean?
Definition of foreign debt : the amount of money that a country owes other countries the nation’s growing foreign debt.
How does foreign debt affect the economy?
Excessive amounts of foreign debt will hinder countries’ capacity to invest in their financial prospects, whether through education, infrastructure, or health care, because their small income is spent on repayment of loans. It is a challenge to economic development in the long term.
Why do countries buy foreign bonds?
When a government needs money to fund its operations, it can raise cash by issuing debt in its own currency. For this reason, countries may decide to issue debt in a foreign currency, thereby quelling investor fears of currency devaluation eroding their earnings.
Is external debt good for a country?
A country with a high amount of external debt raises caution among prospective lenders, and they become unwilling to lend more money. Since it cannot raise further debt, the country might fail to repay external debt, a phenomenon known as sovereign default.
What is an example of foreign debt?
Foreign debt is money borrowed by a government, corporation or private household from another country’s government or private lenders. Foreign debt also includes obligations to international organizations such as the World Bank, Asian Development Bank (ADB), and the International Monetary Fund (IMF).
Who owns foreign debt?
Major foreign holders of U.S. treasury securities as of June 2021 (in billion U.S. dollars)
| Characteristic | Securities in billion U.S. dollars |
|---|---|
| China, Mainland | 1,061.9 |
| United Kingdom | 452.9 |
| Ireland | 322.9 |
| Luxembourg | 301.8 |
Why is foreign debt important?
Foreign debt is often expressed as a percentage of gross domestic product (GDP) in order to show its relative significance. This allows for more appropriate comparisons to be made over time and reflects to a degree the economy’s capacity to repay the debt.
Which country has the highest external debt?
List
| Rank | Country/Region | External debt US dollars |
|---|---|---|
| 1 | United States | 2.29×1013 |
| 2 | United Kingdom | 9.019×1012 |
| 3 | France | 7.3239×1012 |
| 4 | Germany | 5.7358032×1012 |
Why do nations accrue debts?
Most countries – from those developing their economies to the world’s richest nations – issue debt in order to finance their growth. This is similar to how a business will take out a loan to finance a new project, or how a family might take out a loan to buy a home.