8.12 Debt service as a percentage of exports of goods and services

Modified on 2013/03/26 18:03 by The World Bank — Categorized as: Goal 8

Contents

GOAL AND TARGET ADDRESSED

Goal 8. Develop a global partnership for development.
Target 8D. Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term.

DEFINITION AND METHOD OF COMPUTATION

Definition
The debt service as a percentage of exports of goods and services is the sum of a country’s debt service on long-term public and publicly guaranteed debt and International Monetary Fund (IMF) repurchases and charges, expressed as a percentage of that country’s exports of goods and services and net income from abroad.

Concepts
Debt service is the sum of principle repayments and interest payments actually paid on debt to non-residents.

Long-term refers to debt that has an original or extended maturity of more than one year.

IMF repurchases are total repayments of outstanding drawings from the general resources account during the year specified, excluding repayments due in the reserve tranche.

IMF charges cover interest payments with respect to all uses of IMF resources, excluding those resulting from drawings in the reserve tranche.

Exports of goods, services and net income are the sum of goods (merchandise) exports, exports of (nonfactor) services and income (factor) receipts from abroad excluding workers' remittances.

Method of computation
The indicator is calculated as the value of external debt service divided by the value of exports of goods and services and income and multiplied by 100.

RATIONALE AND INTERPRETATION

The MDG target on debt relief addresses the need to make debt sustainable in the long term. This indicator is one measure of whether debt levels are sustainable.

While there are no rules for determining when a countries’ debt service is unsustainable, empirical analysis of developing countries’ debt service experience shows that debt service difficulties increase when debt exceeds 200 per cent of export values. Countries with fast-growing economies and exports are, however, usually able to sustain higher debt levels than other countries.

SOURCES AND DATA COLLECTION

Information on external debt is recorded and maintained by ministries of finance and central banks on a loan-by-loan basis. Data on exports of goods and services and income from abroad are recorded in the balance of payments.

DISAGGREGATION

Data on external debt are reported on a loan-by-loan basis by most countries, thus it is theoretically possible to disaggregate the external debt by debtors and creditors. Data on exports are currently available only at the national level.

COMMENTS AND LIMITATIONS

This series differs from standard debt-to-export ratios because it covers debt service only on long-term public and publicly guaranteed debt and repayments to the IMF. Standard debt-to-export ratios cover total external debt including private non-guaranteed debt and short-term debt. Shares of private non-guaranteed debt and short term debt are small for low-income countries, but they can be substantial for creditworthy middle-income countries.

Small, open economies may have relatively high levels of exports and yet they may still have difficulties in meeting debt service obligations, particularly when debt service payments for public debt are high relative to government revenue. On the other hand, a large economy may have proportionately smaller exports and still find its debt payments sustainable. For this reason, it is useful to look at other indicators in forming a picture of debt sustainability such as the ratio of total debt to gross national income, the size of international currency reserves relative to total debt and the amount of debt that is due to mature within one year.

Where formal registration of foreign borrowing is not mandatory, compilers must rely on balance of payments data and financial surveys to compile debt service data.

GENDER EQUALITY ISSUES

Not applicable for this indicator.

DATA FOR GLOBAL AND REGIONAL MONITORING

Data for global and regional monitoring are produced by the World Bank.

Debt service is calculated on the basis of the loan-by-loan information on external debt that is reported to the World Bank’s Debtor Reporting System by country authorities (ministry of finance or central bank). Data on loans made by the African Development Bank, the Asian Development Bank, the Inter- American Development Bank, the International Bank for Reconstruction and Development and the International Development Association are taken from the creditors’ records. Reports contain annual stocks and flows information as well as terms and conditions of individual loans contracted. Some adjustments are made to debt service values based on known heavily indebted poor countries (HIPC) debt relief commitments and other information obtained by World Bank and IMF staff.

Country-level debt service data are estimated by the World Bank staff. Initial estimates are reviewed internally by asking Bank country offices to verify and cross–check the data with other sources including statements and reports from regional development banks, government lending agencies, central banks and official government websites.

Exports of goods and services and income come from the IMF’s Balance of Payments (BOP) database. BOP data reported by countries are, in some cases, adjusted by the IMF. No comparison has been made between the IMF BOP files and country published data.

Data for heavily indebted poor countries from 1998 forward are taken from HIPC Initiative and the Multilateral Debt Relief Initiative (MDRI) - Status of Implementation reports. This information is compiled by the International Monetary Fund (IMF) and the World Bank from their HIPC decision and completion point documents.

Data received by the World Bank from its members and major multilateral agencies are expressed in the currencies in which the debts are repayable or in which the transactions took place. For aggregation, the Bank converts these amounts to US dollars using the IMF par values or central rates, or the current market rates where appropriate. Service payments, commitments, and disbursements (flows) are converted to US dollars at the average rate for the year. Data are also verified against other sources, and are adjusted as needed to ensure completeness and accuracy.

National figures on external debt might differ from global figures published in the World Bank’s International Debt Statistics publication due to discrepancies in exchange rates used to convert the data to US dollar. Data on long-term debt reported by member countries are checked against, and supplemented by data from several other sources including statements and reports of regional development banks, government lending agencies, and official government websites. In some cases adjustments are made to the incomplete reports using secondary sources, so the final figures may differ from country level figures.

Regional and global figures for the debt service to export ratio are weighted averages, using the value of countries’ exports of goods, services and income as the weight.

SUPPLEMENTARY INFORMATION



EXAMPLES



REFERENCES

INTERNATIONAL DEVELOPMENT ASSOCIATION and INTERNATIONAL MONETARY FUND (annual). Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI)—Status of Implementation. Washington DC. Available from http://go.worldbank.org/LG6DPCAI60.

INTERNATIONAL MONETARY FUND (annual). Debt Relief under the Heavily Indebted Poor Countries (HIPC) Initiative. Washington, D.C. Internet site http://www.imf.org/external/np/exr/facts/hipc.htm.

WORLD BANK (annual). Development Data and Statistics. Washington, D.C. Internet site http://data.worldbank.org/.

WORLD BANK (annual). International Debt Statistics. Washington, D.C. Available from http://data.worldbank.org/data-catalog/global-development-finance.

WORLD BANK (annual). The Enhanced Heavily Indebted Poor Countries Initiative. Washington, D.C. Internet site http://go.worldbank.org/85B908KVE0.