The main external debt indicators are
grouped into Liquidity Monitoring, Debt Burden, Debt Structure,
NPV and Dynamic Indicators [more]
Issues that should be considered prior
to embarking on indicator analyses are, the types of debt included
in debt stock and debt service payments (the numerator in the
debt ratios); the method used to measure the debt burden; and
the repayment capacity (the denominator in the debt ratios)
[more]
The three main external debt indicators
that are used are the debt service ratio and the NPV of debt
service to gross national income and XGS [more]
Indicators that can be
used to judge vulnerability of an economy to a payments crisis
[more]
Main types of external
debt and fiscal indicators used for assessing debt sustainability
The main external debt indicators are grouped
into Liquidity Monitoring, Debt Burden, Debt Structure, NPV and
Dynamic Indicators. These are defined in the section on Debt Indicators.
The commonly used fiscal
indicators are the ratios of domestic and foreign government debt
service payments and debt outstanding, and the NPV of government
debt service to government revenue and the ratio of the average
rate of interest on government debt to the rate of growth in government
revenue.
What are the issues
that need to be considered before embarking on indicator analyses?
The issues that should
be considered prior to embarking on indicator analyses are, the
types of debt included in debt stock and debt service payments
(the numerator in the debt ratios); the method used to measure
the debt burden; and the repayment capacity (the denominator in
the debt ratios).
Domestic debt is a serious
concern in many low income countries. Similarly private sector
external debt could be considerable where the capital account
has been liberalized. Debt sustainability analyses of public and
publicly guaranteed external debt as done under the HIPC Initiative
may only provide a partial assessment. Wherever possible, a comprehensive
definition of debt should be used when such analyses are conducted.
Three measures of debt
burden are normally considered when debt sustainability is assessed.
They are (i) the nominal stock of debt expressed in a single currency,
(ii) the stock of debt measured in net present value terms by
discounting the future stream of debt service payments by a series
of discount rates relevant to the loan portfolio and (iii) the
annual or multi-year payments due on debt service.
Current debt service
ratios are indicators of the present debt service position. Low
current ratios may mask future problems of high debt stock due
to grace and long repayment periods. The NPV of debt service is
able to capture the concessionality of outstanding debt obligations
but does not take account of the growth in repayment capacity
that would be captured by projections of debt service ratios.
Gross national income
is used to measure the capacity to make debt service payments.
The size of the economy does not translate into a capacity to
pay. Export earnings are available to make debt service payments
but their availability to the government depends on the openness
of the economy. The usefulness of export earnings as a measure
of the capacity to make debt service payments also depend on the
debts included in the stock, i.e., total external debt or public
and publicly guaranteed external debt.
Government revenue is a third measure
for estimating the capacity to repay government and public and
publicly guaranteed debt. Its use is argued against due to difficulties
in estimation. A moral hazard argument is also advanced as lower
revenue collections will lead to higher estimates of the debt
indicators.
What are the threshold
values of the commonly used indicators?
The three main external
debt indicators that are used are the debt service ratio and the
NPV of debt service to gross national income and XGS. The threshold
values for these are given in the table below.
Indicator Highly Indebted
Moderately Indebted Less Indebted
| TDS/XGS |
>30% |
>18% |
<30% |
<18% |
| NPV/GNI |
>80% |
>48% |
<80% |
<48% |
| NPV/XGS |
>220% |
>132% |
< 220% |
<132 % |
Under the HIPC Initiative, countries were
judged to be eligible for assistance if the ratio of net present
value of debt service on public and publicly guaranteed debt to
XGS exceeded 150 percent. Other useful indicators of indebtedness
when domestic debt is a major component of government debt are
the ratio of government debt service on domestic and external
debt to government revenue and the NPV of government debt service
to government revenue. A high ratio of tax revenue to GDP is an
indicator of a more developed tax base which should enable the
government to respond to adverse fiscal shocks effectively.
What are the other
indicators that can be used to judge vulnerability of an economy
to a payments crisis?
The other indicators that can be used to
judge vulnerability of an economy to a payments crisis are:
(i) the concentration of exports;
(ii) the variability of exports;
(iii) the current account deficit, excluding
interest and net official transfers as a share of the GDP;
(iv) the foreign exchange reserves coverage;
(v) the short-term indebtedness ratio;
(vi) aid dependency; and
(vii) the policy track record of the government.
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