This document provides an overview of external debt in India and other emerging economies. It defines external debt and discusses how India classifies its external debt into categories such as multilateral, bilateral, commercial borrowings, and NRI deposits. The document also examines India's external debt indicators, composition, debt service trends, and projections. Additionally, it benchmarks India's external debt metrics against other major developing countries and discusses concepts like sovereign external debt.

1. External Debt in India & Other
Emerging Economies
Submitted by:
Swantantra Saurbh 13020241055
Taru Bakshi 13020241058
Siddharth Shah 13020241050
Rameshwar Rao 13020241059
Vinit Gala 13020241063
1

2. Contents
• External Debt: Meaning & Definitions
• Classification of External Debt
• Indicators of External Debt
• Composition of India’s External Debt
• Debt Service
• Comparison with Emerging Economies
• Sovereign External Debt
• References
2

3. External Debt:
Meaning and
Definitions
3

4. External Debt : Meaning
• Part of the total debt of a country that is owed to Creditors outside
the country.
• Debtors can be government, Corporations or Citizens of that
country.
• Debt includes money owed to Private Commercial banks,
Governments or International Financial Institutions.
• External Debt can be Long Term and Short term both.
• Main Components of India’s External Debt are External
Commercial Borrowings, Short term Debts and rupee denominated
NRI deposits.
• IMF defines the key elements as follows:
1. Outstanding and Actual Current Liabilities
4

5. Definitions
1. Long and Short-term:
Long term debt is defined as debt with an original maturity of more than one
year, while short term debt is defined as debt repayments with an original
maturity of one year or less.
2. Multilateral and Bilateral Debt:
Multilateral creditors are primarily multilateral institutions such as the
International Development Association (IDA), International Bank for
Reconstruction and Development (IBRD), Asian Development bank (ADB) etc.
5

6. 2. Multilateral and Bilateral Debt (Cont.):
Bilateral creditors are sovereign countries with whom sovereign and non-sovereign
entities enter into one-to-one loan arrangements. Some of India’s
bilateral creditors who extend loans include Japan, Germany, United States,
France, Netherlands, Russian Federation etc.
3. Sovereign (Government) and Non-Sovereign (Non-Government) debt
Sovereign debt includes:
(i) external debt outstanding on account of loans received by Government
of India under the ‘external assistance’ programme
(ii) Other Government debt comprising borrowings from IMF
(iii) FII investment in Government Securities
6

7. Non-sovereign includes the remaining components of external debt.
4. Trade Credits/Export Credits
Trade credits/Export credits refer to loans and credits extended for imports by
overseas supplier, bank and financial institution to sovereign and non-sovereign
entities.
5. External Commercial Borrowings
The definition of commercial borrowing includes loans from commercial
banks, other commercial financial institutions, money raised through issue of
securitized instruments like Bonds
4. Concessional Debt
It means long maturity and less-than-market rates of interest charged on
borrowings
7

8. Classification
8

9. Classification of External Debt
• Generally external debt is classified into four heads:
(1) public and publicly guaranteed debt;
(2) private non-guaranteed credits;
(3) central bank deposits; and
(4) loans due to the IMF.
• However the exact treatment varies from country to country. For example,
while Egypt maintains this four head classification, in India it is classified in
seven heads:
(a) multilateral,
(b) bilateral,
(c) IMF loans,
(d) Trade Credit,
(e) Commercial Borrowings,
(f) NRI Deposits,
(g) Rupee Debt, and
9

10. Indicators of External Debt
• Examples of debt burden indicators include the
(a) Debt to GDP ratio,
(b) foreign debt to exports ratio,
(c) government debt to current fiscal revenue ratio etc.
This set of indicators also covers the structure of the outstanding debt
including the
(d) share of foreign debt,
(e) short-term debt, and
(f) concessional debt in the total debt stock.
A second set of indicators focuses on the short-term liquidity requirements
of the
country with respect to its debt service obligations. These indicators are not
only useful
early-warning signs of debt service problems, but also highlight the impact
of the inter-temporal
trade-offs arising from past borrowing decisions. Examples of liquidity
monitoring indicators include:
(a) debt service to GDP ratio,
10

11. Composition of India’s External
Debt
11

12. 12

13. Current Status of Outstanding Debt
13

14. Borrower Classification
14

15. Currency Composition of
External Debt
15

16. 16

17. 17

18. Debt Service
18

19. DEBT SERVICE
• Debt service payments and debt service ratio
occupy a central place in analysis of external debt
• Debt service payments or servicing of external debt
is defined as the set of payments, inclusive of both
principal and interest that are made to meet debt
obligation
• Debt Service Ratio:
Debt service ratio is measured by the proportion of
total debt service payments (i.e. principal repayment
plus interest payment) to current receipts of Balance
of Payments (BoP). It indicates the claim that
servicing of external debt makes on current receipts
and is, therefore, a measure of strain on BoP due to
servicing of debt service obligations
19

20. Trends in India’s Debt Service
Payments
20
$32.3 B
increase of
3.1%

21. Trends in India’s Debt Service
Payments
• Gross debt service payments amounted to US$
32.3 billion during 2013-14, recording an increase
of 3.1% over the previous year
• Principal repayments accounted for 65.4% in the
India’s total debt service payments in 2013-14,
while the rest 34.6% was on account of interest
payments
• Increase in debt service payments was on account
of higher interest payments for NRI deposits and
larger repayment of external commercial borrowings
during 2013-14
• Debt service ratio stood at 5.9% in 2013-14, same 21

22. Component-wise
debt
service
payments
during
2008-09 to
2013-14
indicate the
predominan
ce of
commercial
borrowings
22

23. 23

24. Domination by External Commercial
Borrowings
• India’s debt service payments are dominated
by the external commercial borrowings
which accounted for 72.4% of gross debt
service payments during 2013-14. Other
components such as NRI deposits, external
assistance and rupee debt service
contributed the rest 27.6%
• The dominance of external commercial
borrowings is an indication of growing
recourse to their use by the companies to
meet their financing requirements
24

25. Official Vs. Private Creditors
• The average terms of new commitments to India from official
and private creditors continue to indicate that it is favourable
to avail credit from official vis-à-vis private creditors
25
Official
Creditors
Private
Creditors
Loan
Amount 1000000 1000000
Interest
Rate 1.40% 3.60%
Term 25 7

26. 26
Projections of Debt Service
Payments
Year Princi
pal
Intere
st
Total
(2+3)
1 2 3 4
2014-
15
24,99
5 4,519 29,514
2015-
16
23,36
9 4,175 27,544
2016-
17
25,86
9 3,537 29,406
2017-
18
22,79
1 2,861 25,652
2018-
19
22,26
4 2,300 24,564
2019-
20
14,33
0 1,789 16,119
2020-
21
11,57
9 1,403 12,982
2021-
22
10,03
6 1,132 11,168
2022-
23
10,44
5 938 11,383
2023-
24 8,093 685 8,778
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Projected Debt Service Payments (US$ billion)
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Principal Repayments Interest Payments Total Debt Service Payments
• Debt service projections based on long-term debt outstanding at
the end of March 2014 show that debt service payments would
reach US$ 29.5 billion in 2014-15
• The large debt service payments are primarily on account of
higher repayments of ECBs.

27. Emerging
Economies
27

28. Emerging Economies
Definition : Rapidly growing volatile
economies, promising huge potential for
growth but content with significant political,
monetary and social risks.
Set of defining characteristics
1. Transitional Economy
2. Young and Growing Population
3. Underdeveloped Infrastructure
4. Increasing Foreign Investment
28

29. External Debt of
developing countries
29

30. Comparison of top 20
developing countries
30
SI No: Country
Total External
Debt Total Debt
Short-Term
Debt
Debt Service
Ratio
Foreign Exchange
reserves
(In $ Mn) to GNI (%) to Total Debt(%) (%) to total debt (%)
1 China 754009 9.2 67.6 3.3 441.8
2 Brazil 440478 19.9 7.4 15.5 83.9
3 India 379099 20.8 24.6 6.8 71.4
4 Mexico 354897 30.7 20.4 17.7 45.2
5 Turkey 337492 43.1 29.9 26.1 29.6
6 Indonesia 254899 29.9 17.6 17.1 42.7
7 Hungary 203757 173.4 11.2 84.6 21.8
8 South Africa 137501 36.6 20.3 7.9 32
9 Kazakhstan 137014 79 6.8 23.5 16.2
10 Ukraine 135067 77.9 25.7 31.5 16.8
11 Thailand 134223 38.2 42.4 4.1 129.1
12 Romania 131889 78.9 20.5 34.2 31.2
13 Argentina 121013 26.3 11.6 13.2 33
14 Malaysia 103950 35.5 45.2 3.5 132.5
15 Colombia 79051 22.4 13.5 22 46.1
16 Venezuela 72097 19.4 26.9 5.6 13.7
17 Pakistan 61867 25.5 4.2 14.9 16.6
18 Philippines 61390 24.6 13.8 8 119.7
19 Vietnam 59133 44.1 16.7 4.4 43.2
20 Peru 54148 29.4 15.8 12.5 115.1

31. Comparison of change in external debt
of top 20 developing countries between
2000 - 2012
31

32. Present Value Concept
• Useful measure of indebtedness.
• Discounting all future debt service payments
by prevailing market interest rates.
• Commercial Interest Reference Rates (
Published by OECD ).
• PV of India’s external debt was US$ 324.3
Billion in 2012.
• Ratio of PV of external debt to GNI and to
export at 17.8% and 71.5% respectively.
32

33. Sovereign
External Debt
33

34. Sovereign External Debt
• Sovereign external debt refers to foreign
debt contracted by the Government of India
• Sovereign external debt has assumed
importance in the backdrop of sovereign
debt crisis in the euro zone
• Borrowings are primarily from multilateral
and bilateral sources and are long-term in
nature
34

35. Composition of Sovereign
External Debt
35

36. Composition of multilateral
and bilateral debt
36

37. Movement in sovereign
external debt
37

38. Currency Composition of
Sovereign External Debt
38

39. Sovereign External Debt
Service
39

40. References
• http://en.wikipedia.org/wiki/External_debt
• http://www.thehindu.com/business/Economy/external-debt-drops-to-
4003-b-at-endsept/article5522843.ece
• http://businesstoday.intoday.in/story/indias-external-debt-at-usd-
426-billion-in-december/1/204695.html
• http://www.rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=13749
• http://www.indiafinancebrief.com/index.php/opinion/157-from-the-editors-
desk/187710-indias-external-debt-a-quick-digest-knowledge-
series
• http://www.finmin.nic.in/the_ministry/dept_eco_affairs/economic_d
iv/External_Debt_QDEC2013.pdf
• http://www.businessweek.com/articles/2013-03-03/how-the-developing-
world-escaped-this-debt-trap
• : http://www.bloomberg.com/visual-data/best-and-worst/best-emerging-
markets-2014-countries
40

41. Thank You
41