External Debt in Countries Around the World

External debt (also called "foreign debt") is the portion of total country debt that is owed to creditors outside of the country. The debtors can be the government, corporations or private households. The creditors include private commercial banks, other governments and international financial institutions (such as the IMF and the World Bank). In the fourth quarter of 2012, the United States had the highest external debt in the world, at nearly US$16 trillion. The United Kingdom was second, at US$10.1 trillion.


By Valentina Pasquali and Luca Ventura. Project Coordinator: Denise Bedell


Data is from Quarterly External Debt Database of the Joint External Debt Hub (JEDH)—developed by the Bank for International Settlements (BIS), the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), and the World Bank (WB)— updated to 2012Q4.


Gross External Debt Position by Country - 2012 (Q4)


 

Dark red - highest rates

Light red - lowest rates


 

Data is from Quarterly External Debt Database of the Joint External Debt Hub (JEDH)—developed by the Bank for International Settlements (BIS), the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), and the World Bank (WB)— updated to 2012Q4.

 

Gross External Debt in Countries Around the World, 2011-2012 (Data in $US million)


Click on the column heading to sort the table.

The International Monetary Fund (IMF) defines external debt as the outstanding amount of actual, current, and not contingent, liabilities that require payment(s) of interest and/or principal by the debtor at some point(s) in the future and that are owed to nonresidents by residents of an economy (determined by where one is located, not one's nationality). The debt includes both principal and interest payments due.


For some countries, particularly developing ones, debt incurred by governments can often exceed those governments' ability to pay (based on tax revenues and on the nation's gross domestic product). Government funds spent on poverty reduction, job creation, infrastructure improvement, education and the like, foster longer-term growth, possibly leading to lower levels of borrowing in the future. However, the burden of loan repayments often makes these beneficial expenditures impossible. In addition, sometimes the debts were incurred by regimes that are no longer in power (and were sometimes corrupt or incompetent), but the burden to pay down the loan falls to a subsequent administration. Loans are sometimes restructured, allowing longer time-periods for repayment. And debt cancellation for developing nations is a topic that is hotly debated.


This World Bank video discusses the impact of debt relief on the quality of life of people in very poor and indebted countries.


The Benefits of Debt Relief


What was once an issue for poor countries – debt restructuring – started affecting developed economies by mid-2010, due to the global financial crisis. Greece, most notably, but also Italy, Portugal, Ireland and Spain, the so-called PIIGS. The latest euro zone country to risk a sovereign default due to the over-exposure of its banking sector has been Cyprus, at the beginning of 2013. Overall, this is a problem that tends to spread quickly, as the risk to the financial markets of a sovereign debt restructuring are considerable and therefore can lead to a drop in confidence in other stressed sovereigns.


The European Sovereign Debt Crisis has clearly delineated not only the importance of actively managing external debt, but also the increasing interconnectedness of global economies.


Furthermore, some analysts point to the potential risk of having a high level of government debt in the hands of foreign creditors. For example, from the 1960s onwards, the United States economy was the investment of choice for the rest of the world. According to the Federal Reserve Bank of New York, holdings of US treasury debt attributed to foreigners grew steadily through the 1970s and 1980s and then increased more rapidly through the 1990s, with the biggest shares being held by the United Kingdom and Japan. In June of 1997 Japanese Prime Minister Ryutaro Hashimoto suggested that Japan might find it necessary to sell some of its treasury holdings. The next day, the Dow Jones industrial average fell by 192 points, its largest single-day decline in the prior 10-year period. While Hashimoto later clarified his remarks, stabilizing markets, it pointed out the potential vulnerability of a country whose financial markets can be impinged upon by another country's investment decisions. By mid-2008, more than 60% of US treasuries were foreign owned.

 

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