Analysis of a country’s external debt includes issues related to size, debt structure and its influence on macroeconomic aggregates.
The statistical indicators are divided into:
- - statistical indicators of the amount of external debt
- - statistical indicators of the external debt structure
- - statistical indicators of the effects of external debt
- The legal framework of external public debt of Romania
External public debt is recorded, monitored and managed by the Ministry of Public Finance (Law no. 313/2004, with subsequent amendments).
According to this, external public debt is the debt the government representing all the states' financial obligations, resulting from loans contracted directly or guaranteed by the state to individuals or legal entities that are not residing in Romania.
Local public external debt is the part of local public debt representing all financial obligations of local authorities, from the loans contracted directly or guaranteed by individuals or legal entities, residents of Romania.
Government debt instruments include, but are not limited to:
- state bounds, domestic or foreign
- state loans from banks, other credit institutions, Romanian or foreign legal entities, under terms resulted from negotiations
- state loans from governments and foreign government agencies, international financial institutions or other international organizations
- temporary loans from the availabilities of the general account of the National Treasury, under the provisions of the law
- state guarantees
III. Analysis of external debt - ROMANIA
According to the latest available statistics, Romania’s' external debt on medium and long term was, on August 31st 2010, of 70,621 million Euros (80. 5 % of the total external debt, increasing by 7.5% from December 2009).
Short-term external debt recorded on August 31st 2010 a level of 17 141 million Euro (19.5% of total external debt), up 17.4% from December 31st 2009.
External debt on medium and long terms, on December 31st 2009, was at a level of 64 208 million (81.6% of total external debt), up by 24.0% compared to December 31st 2008.
Short-term external debt on the same date was of 14 448 million (18.4% of total external debt), down 29.8% from December 31st 2008.
Analysis in terms of debt structure and maturity reveal significant changes. Thus, after annual growth rates of over 31% between 2004-2008, private sector foreign debt climbed only 10% in 2009 (up from 39 billion), decreasing by 9% its weight in the total debt (up about 60%).
Of the total disbursements in 2009 (23.3 billion), about 9 bln represented proceeds of loans from the IMF, EU, World Bank and EBRD, within the financing program granted to Romania.
The service of external debt on short and long term in 2009 was 12 bln Euro, amount from which 9.9 bln Euro represented capital rates and 2.1 bln euro interests and commissions.
At the end of the year 2009, the external debt on medium and long terms represented 56.5 % from GDP (increasing with 19.5% in comparison with the end of the previous year) and 181.2 % in comparison to the exports of goods and services (increased with 59.3%). Both indicators are ranked at levels of concern, indicating the necessity of the unproductive fast elimination of expenses and the orientation towards the industries with export potential.
The structure of external debt by creditors - on short, medium and long terms - reveals the fact that the preponderance of multilateral institutions has increased from 12.5 % at the end of the year 2008, to 13.8% on 31 of December 2009, as a consequence of the loans given by the International Monetary Fund and the EU, at the same time with the decrease of private sources (from 86.8% at the end of 2008 to 85.8% at the end of 2009). As for the classification by maturities, the long term external debt on December 31st 2009 was the most significant (69.9 %) within the category of the external debt on medium and long term, as a consequence of growth of the lateral with 8.2%.
At the end of 2009 the level of Romania’s public debt (internal and external) represented 23.7% of GDP, easily fitting in the 60 % limit, stipulated in the Maastricht Treaty. Nevertheless, it’s worrying the fast increasing rate of the public’s debt growth in GDP (with around 10% in one single year), which, in the absence of some proactive and sustainable reduction measures of budget deficit, can compromise in a few years its conformation with this criteria.
Public debt has increased almost five times its annual growth rate (+25.5% up to 13.5 bln Euro), the year 2009 marking also, the record of 5.7 bln Euro representing the balance of loans granted to Romania under the Stand-By Arrangement with the IMF.
1) External’s Debt Ratio Indicators
The external debt ratio represents the amount of external debt on long and medium term, being calculated at the end of the calendar year or at the end of the financial one.
In Romania’s case, the external debt ratio increased every year.
For the dynamic analysis of the external debt amount, we use the external debt index, calculated with fixed and mobile basis.
IDE t / 0 = DEt / DE0 x 100 - with fixed basis
Where DEt = the current external debt
DE0 = the external debt in base period
IDE t / t - 1 = DE t / DE t - 1 x 100 - with mobile basis
Where DE t = the current external debt
DE t - 1 = the external debt in the previous year
These indicators show how many times the external debt increased from the base year or from the previous one.
In Romania’s case, the IDE calculated with a fixed base, increased from year to year, doubling from 2000 to 2005; peaking in 2008 when it was more than double that of 2005.
Calculated based IDE furniture shows an increase from year to year,with a stronger growth in 2001 compared to 2000 (21%), 2005 vs. 2004 (34%) in 2007 compared to 2006 (35%) as well as 2008 compared to 2007 (32%).
The analysis of the external debt index doesn’t offer relevant information, because it regards only one indicator, but it may be the first step to more detailed analysis, given that the information provided by IDE is correlated with the information about the level of GDP, imports, exports, industrial production and others.
More relevant is the IDE analyze with mobile basis, this representing the dynamic of a country’s external liability, especially in the international comparisons.
External debt per person (DEP) – expresses the amount owed to foreign countries by each individual at a given moment and it is used in international comparisons.
DEP = DE/P
DE = the external debt
P = population
This indicator doesn’t have economic significance, being used only in the international comparisons.
In Romania’s case, DEP has increased year by year, this being caused, on the one hand, by the annual increase of foreign debt, and on the other, by the constant decrease in the population. In 2005, DEP was more than twice than its value from 2000, rising by more than 100% by 2008 as opposed to 2005.
The ratio of external debt and incomes from the export of goods and services (DEX) expresses the number of annual exports needed to fully cover the existing external debt. It is measured in years, and if it exceeds 2 years, it becomes alarming for the authorities.
DEX = DE/X
DE = the external debt
X = goods and services export.
In Romania’s case, both the amount of foreign debt and export volume increased from year to year, DEX reaching values of under one year, from 2000 to 2006, slightly surpassing this term in 2007(1.06 years) followed by an increase of almost 15% 2008 versus 2007 to (1.21 years).
The weight of the external debt in GDP (PDE) - shows how much of the year’s GDP should be used to pay back the actual external debt. Still, the external debt is repaid by installments, only one part being paid back from that year’s GDP. PDE must be under 100%, surpassing this limit means that the volume of the external debt exceeded the added value created in the country in one whole year.
PDE = DE / GDP x 100
In Romania we can see the fact that we note that the PDE is relatively small, well below the recommended limit of 50% between 2000 and 2007, oscillating between 28-31%, increasing again at a relatively strong 37.6% in 2008. Regarding the GDP, it increased continuously from 2000 until 2008, then dropping in 2009 and 2010, according to statistics not included in table.
2) Indicators of the external’s debts economic and financial effects
The ratio between the external’s debt service and export, shows the percentage from exports which can be used for covering the payable external debt in a year.
If it is < 15%, means that DEX doesn't seriously affect the export’s buying power.
In Romania’s case, this indicator has alwys been located above the 15% threashold, with relatively small variations between 2000 and 2004 and then strongly increasing year by year, from 51.5% in 2005, to 82.1% in 2007 and culminating in 2008 to a point of serious concern(107.3%). In conclusion, in Romania, the purchasing power of exports is severely damaged by foreign debt.
IV. Analysis of external debt – BULGARIA
The World Bank classifies the Bulgarian economy as an upper middle income economy. The country’s economy has registered steady growth in the recent past, although it still remains one of the least developed countries in Europe.
Bulgaria economy has experienced growth in excess of 6% from 1996 to 2008. This growth has been helped by foreign direct investment.
Bulgaria introduced the Currency Board Arrangement (CBA) on July 1997, pegging the Bulgarian Leva to the German Mark and subsequently to the Euro (at an exchange rate of 1.95583 BGN/EUR). The CBA was instrumental in achieving macroeconomic stabilization and serves as a key policy anchor.
The full impact of the global financial and economic crisis reached the Bulgarian economy only in 2009, when it entered into recession with real GDP declining by 5%. Against this background, previously accumulated imbalances started to correct, although less sharply than in some other countries in the region. Given the lagged process of adjustment and foreseen fiscal consolidation, growth is likely to remain weak in 2010, largely depending on the recovery in Bulgarian export markets.
The Commission services' Spring 2010 Forecast projects Bulgaria's economic growth to be close to zero in 2010, followed by 2.7% growth in 2011. As a result of the deep recession, the Bulgarian economy operated below its potential in 2009 and is projected to stay below potential throughout 2010.
Over recent years Bulgaria has accumulated large external debt. The rapid accumulation of external debt was a result of expanding private debt, which now makes up almost 90% of total external debt, while public external debt was reduced sharply over the same period due to fiscal discipline. In 2009 the ratio of short-term debt to GDP stabilised at around 34% and remained broadly unchanged in early 2010.
The external debt of Bulgaria fluctuated between 2000 and 2004 between relatively between relatively close parameters, continuing with a growth tendency between 2005 and 2008,reaching it's peack in 2008, when the amount of external debt was more than double that of 2005.
So, unlike Romania, where the trend is of anualcontinous growth, the external debt of in Bulgaria has evolved differently, increases followed by declines, at least in the period 2000-2003.
The external debt index, calculated with fixed base, also shows the same trend as the amount of foreign debt between 2002 and 2004, dropping from 2000, after in 2005, increasing continuously, with 85.8% in 2007, respectively 126.5 % in 2008 compared to 2000.
IDE calculated in a mobile base show a decrease, in 2002 and 2003 from the previous year (2001, 2002 respectively), achieved strong growth in 2006 compared to 2005 (25.5%), in 2007 compared to 2006 (with 35%) and 2008 versus 2007 (21.9%).
External debt per capita (DEP) of Bulgaria has decreased in 2002-2004 compared to 2000-2001, only to later to grow consistently, year after year, in 2007 nearly doubling from 2004, and 2008 increasing by almost 23 % compared to 2007.
Compared with Romania, Bulgaria’s per capita foreign debt is always higher, being more than double in 2000-2001, in 2007 is higher by 42.5%,respectively 31.3% in 2008. We note, therefore, a reduction of the difference between Romania's and Bulgaria's DEP. Also, as in the case of Romania, we can observe its annual constant decrease in the number of inhabitants.
The ratio of external debt and receipts from exports of goods and services (DEX), exceeded slightly in 2000 the value of two years, later descending and remaining constantly under this value, droping continuously between 2001 and 2006, from 1.89 years to 1.21 years and increased thereafter to 1.45 years in 2007 and to 1.57 years in 2008.
Also in the case of DEX, Bulgaria is in a less favorable situation than Romania, for the entire period studied: we can still observe, through time a decrease of DEX difference between the two countries. It can also be observed, for both countries, continued annual growth of the value of exports.
The weight of external debt in GDP (PDE) of Bulgaria exceeds permanently the recommended limit of 50%, except for the years 2003-2005, when it is consistently slightly below this value (49.5%).
Regarding the GDP, it increased continuously from 2000 until 2008, as in the case of Romania.
Also in what concerns PDE, Bulgaria is in a less favorable situation than Romania, for the entire period studied, whilst a decrease of the differences between the two countries PDE is visible, in 2000-2005, followed again by an increase in the gap at the expense of Bulgaria, between 2005 and 2008.
The ratio of external debt service and export has been continuously above 15%, strongly increasing to 63.6% in 2005, then declining sharply in 2006 to 38.1% and 46.5% thereafter increasing next year and 47.8% in 2008, the purchasing power of exports being affected by external debt service. At this point, the purchasing power of exports has been affected by external debt service.
Romania is better on this indicator only in the years 2000-2001, 2004-2005, afterwards the Romanian SDEX having surpasses Bulgaria’s, being more than double that in 2008.
Bibliography:
Baron Tudor, Biji Elena-Maria - Statistica teoretica si economica, Editura Didactica si Pedagogica, Bucuresti, 1996
Begu Liviu-Stelian – Statistica internationala, Editura ASE, Bucuresti, 2003
European Commission – Directorate-General for Economic and Financial Affairs – Convergence Report 2010
