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Problems and prospects of external debt management - Essay Example
Finance & Accounting
Pages 6 (1506 words)
Problems and Prospects of External Debt Management When a country requires financial resources in excess of what it already has, it is compelled to borrow finances from other sources. These creditors can be financial institutions located within the domestic country or situated outside the geographical boundaries of the nation…
However, these indigenous institutions may not always have sufficient amount of resources to fulfill all the requirements of the country. In that case, it is forced to resort to international commercial banks or international lending institutions like the IMF of the World Bank. It can also request for financial aid from the Government of its ally nations. The debtors of a country can include the national Government, the private corporations or even the individual households. Usually, external debt is borrowed in two ways: by taking loans from the lending institutions or by selling the country’s securities to acquire the required amount of funds. After the country accomplishes its projects with the help of the borrowed resources, it is required to repay the external debt along with its interest payments. Thus, external debt is actually a liability of the nation. For this reason, it is recorded under the Debit Account in the Balance of Payments (BOP) of the country. ...
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