In many developing countries a significant component of the increase in external indebtedness in the 1990s was due to the activities of the private sector and state enterprises. [more]

Data on all external borrowings by financial and non-financial private sector firms, joint ventures and public bodies where the share of the private sector exceeds 50 percent should be captured in the loan data base. [more]

Instruments with maturities of up to one year are the short- term borrowing that should be monitored [more]

In the case of countries with controls on capital account transactions, the regulations of the Central Bank require private and state enterprise borrowers to obtain the approval of [more]

In many developing countries a significant component of the increase in external indebtedness in the 1990s was due to the activities of the private sector and state enterprises. Although these entities are accountable for their debt, the performance of some sectors could have a significant impact on the implementation of macroeconomic policies e.g. heavy borrowings of the banking sector abroad to finance domestic loans that became non-performing. Similarly, the weak performance of major non-financial entities could affect various sectors in the domestic economy adversely. Governments could face difficulties in accessing international capital markets as a result of poor performance of unguaranteed loans.

Governments should monitor PNG debt more effectively than in the past. This has become important due to the growth and dependence on short and long-term PNG debt in many developing and emerging market economies. The data is required to assess the appropriateness of macroeconomic policies and obtain timely information on the country's total foreign exposure.

Data on all external borrowings by financial and non-financial private sector firms, joint ventures and public bodies where the share of the private sector exceeds 50 percent should be captured in the loan data base. A full coverage of PNG debt should capture debt instruments with original maturities exceeding one year. These are:

(i) commercial bank loans (syndicated or other) for trade or project finance;

(ii) loans from foreign companies to their branches, subsidiaries and associates for trade, project or business costs;

(iii) commercial or development bank loans to financial institutions for on-lending to state and private enterprises;

(iv) bonds, debentures, notes and certificates of deposits issued in international capital markets;

(v) trade credits covering suppliers' and buyers' credits;

(vi) financial leases; and

(vii) financial derivatives.

Some of these instruments do not lead to an inward remittance of funds to the country through the banking system but are used for making payments externally for the purchase of goods and services.

The following instruments with maturities of up to one year are the short- term borrowing that should be monitored:

(i) short-term loans from foreign financial institutions for normal inter-bank transactions;

(ii) loans from foreign companies to their branches, subsidiaries and associates for trade finance, working capital and other business costs;

(iii) short-term loans from buyers abroad as export advances;

(iv) letters of credits used to finance imports subject to deferred payments;

(v) imports on a consignment basis with payment made on acceptance of documents;

(vi) money market instruments e.g. commercial paper, banker's acceptances, certificates of deposit and short-term notes with maturities of less than one year;


(vii) financial derivatives including options, traded financial futures, warrants and currency and interest rate swaps; and

(viii) non-resident deposits.

In the case of countries with controls on capital account transactions, the regulations of the Central Bank require private and state enterprise borrowers to obtain the approval of the exchange control authorities for all foreign borrowings that are not guaranteed by the government. This provides the opportunity to obtain all the basic loan details and the approval of debt service payments could be made contingent on the submission of data on loan transactions on a periodic basis to the Central Bank as required for the loan database.

When countries liberalize their capital accounts different arrangements are necessary. Under their regulatory regimes, Central Banks have supervisory powers to ensure that all financial institutions report foreign exchange receipts and payments to enable information on foreign borrowings and their servicing to be captured. Not all loan transactions pass through the financial system. As manufacturing and business establishments develop and become more internationalized, their overseas business operations are financed by foreign borrowings that are not channeled through the domestic financial system. Boards of Investment and their monitoring systems should provide information on foreign borrowings by FDI projects to Central Banks. and information obtained from the financial system needs to be supplemented with data from other sources.

Complete coverage of PNG debt also requires direct reporting by borrowing firms - particularly those outside the financial sector. Central Banks could also use surveys to supplement the data collected through other avenues to fill gaps that may exist and obtain a complete picture of PNG debt.

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