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External External Debt: Debt: Problems Problems and Policiesand Policies
Thorvaldur Gylfason
It dependsIt dependsIf foreign borrowing is used well,If foreign borrowing is used well,
to finance to finance profitable investmentsprofitable investments, , etc.,etc.,
then borrowing may be a good thingthen borrowing may be a good thing
Many countries have developed with Many countries have developed with the aid of external loansthe aid of external loansThis is how the US built its railways This is how the US built its railways
and how Korea managed to develop and how Korea managed to develop so rapidly from the 1960s onwardsso rapidly from the 1960s onwards
Both countries Both countries paid backpaid back their debts their debts
External debt: External debt: Good or bad?Good or bad?
Many other countries have fared less Many other countries have fared less well with their external debt well with their external debt strategies because ...strategies because ...... they did ... they did notnot use their foreign loans use their foreign loans
wellwell
Too often, countries have borrowed Too often, countries have borrowed abroad to finance consumption, not abroad to finance consumption, not investmentinvestmentConsumption does not increase the Consumption does not increase the
ability of indebted countries to service ability of indebted countries to service their debts, nor does low-quality their debts, nor does low-quality investmentinvestment
But But high-quality investmenthigh-quality investment does does
External debt: External debt: Good or bad?Good or bad?
If the world interest rate is lower If the world interest rate is lower than the domestic interest rate, than the domestic interest rate, the country will be a the country will be a borrowerborrower in in world financial markets world financial markets
Domestic firms will want to borrow Domestic firms will want to borrow at the lower world interest rateat the lower world interest rate
Domestic households will reduce Domestic households will reduce their saving because the domestic their saving because the domestic interest rate moves down to the interest rate moves down to the level of the world interest ratelevel of the world interest rate
Conceptual Conceptual frameworkframework
Real interest rate
0 Saving, investment
Saving
Investment
World interest rate
World equilibrium
Domesticsaving
Domesticinvestment
Domestic equilibrium
Borrowing
Conceptual Conceptual frameworkframework
0
Saving
World interest rate
Investment
World equilibrium
Domestic equilibrium
A
B
C
D
Borrowing
Conceptual Conceptual frameworkframework
Real interest rate
Saving, investment
0
Saving
Investment
World equilibrium
Domestic equilibrium
A
Consumer surplusbefore borrowing
C
B
Producer surplusbefore borrowing
Real interest rate
Saving, investment
Conceptual Conceptual frameworkframework
0
Saving
World interest rate
Investment
World equilibrium
Domestic equilibrium
A
Consumer surplusafter borrowing
B D
CProducer surplusafter borrowing
Borrowing
Conceptual Conceptual frameworkframework
Real interest rate
Saving, investment
The area D shows the increase in total surplus and represents the gains from borrowing
Before trade After trade Change
Consumer surplusConsumer surplus A A + B + D + (B + D)
Producer surplusProducer surplus B + C C - B
Total surplusTotal surplus A + B + C A + B + C + D + D
Conceptual Conceptual frameworkframework
Borrowers are better off and Borrowers are better off and savers are worse offsavers are worse off
Borrowing raises the economic Borrowing raises the economic well-being of the nation as a whole well-being of the nation as a whole because the gains of borrowers because the gains of borrowers exceed the losses of saversexceed the losses of savers
If world interest rate is If world interest rate is aboveabove domestic interest rate, savers are domestic interest rate, savers are better off and borrowers are worse better off and borrowers are worse off, and nation as a whole still off, and nation as a whole still gainsgains
Gains from trade: Gains from trade: Three main Three main conclusionsconclusions
Debt stockDebt stockUsually measured in dollars or other Usually measured in dollars or other
international currenciesinternational currenciesbecause because debt needs to be debt needs to be
servicedserviced in foreign currency in foreign currency
Debt ratioDebt ratioRatio of external debt to GDPRatio of external debt to GDPRatio of external debt to exportsRatio of external debt to exports
More useful for some purposes, More useful for some purposes, because because export earnings reflect the export earnings reflect the ability to service the debtability to service the debt
External debt: External debt: Key conceptsKey concepts
External debt: External debt: Key conceptsKey concepts
Debt burdenDebt burdenAlso called Also called debt service ratiodebt service ratio
Equals the ratio of amortization Equals the ratio of amortization and interest payments to and interest payments to exportsexports
q = debt service ratioA = amortizationr = interest rate DF = foreign debtX = exports
X
rDAq
F
Interest burdenInterest burdenRatio of interest payments to Ratio of interest payments to
exportsexports
X
Aa q = a + bq = a + b
Amortization burdenAmortization burdenAlso called Also called repaymentrepayment burden burden
Ratio of amortization to Ratio of amortization to exportsexports
X
rDb
F
External debt: External debt: Key conceptsKey concepts
Magnitude of the debtMagnitude of the debtDebt should not become too largeDebt should not become too large
How large is too large?How large is too large?
Measurement of the debtMeasurement of the debtGross or net?Gross or net?
May subtract foreign reserves in excess May subtract foreign reserves in excess of 3 months of imports of 3 months of imports
Composition of the debtComposition of the debtFDI, portfolio equity, long-term loans, FDI, portfolio equity, long-term loans,
short-term loansshort-term loans
External debt: External debt: Magnitude and Magnitude and compositioncomposition
Composition of the debtComposition of the debtForeign direct investmentForeign direct investment
Least likely to flee, most desirableLeast likely to flee, most desirable
Portfolio equityPortfolio equity
Long-term loansLong-term loans
Short-term loansShort-term loansMost volatile, least desirableMost volatile, least desirable
As a rule, outstanding short-term As a rule, outstanding short-term debt should not exceed foreign debt should not exceed foreign reservesreserves
External debt: External debt: Magnitude and Magnitude and compositioncomposition
Indonesia Indonesia
and Korea and Korea
broke this broke this
rule in rule in
19961996
How can we figure out a How can we figure out a country’s debt burden?country’s debt burden?Divide through definition of Divide through definition of qq by by
incomeincomeNow we have expressed Now we have expressed the debt service ratio in the debt service ratio in terms of familiar terms of familiar quantities: the interest quantities: the interest rate rate rr, the debt ratio , the debt ratio DDFF/Y/Y, and the export , and the export ratio ratio X/YX/Y as well as the as well as the repayment ratio repayment ratio A/YA/Y
Y
XY
Dr
Y
A
q
F
External debt: External debt: NumbersNumbers
Suppose that Suppose that r = 0.06r = 0.06
DDFF/Y = 0.50/Y = 0.50
A/Y = 0.05A/Y = 0.05
X/Y = 0.20X/Y = 0.20
4.02.0
08.0
0.2
5.006.005.0q
Here we have a Here we have a country that has to country that has to use use 40% of its export 40% of its export earningsearnings to service to service its external debtits external debt
Heavy burden!Heavy burden!
Y
XY
Dr
Y
A
q
F
Numerical exampleNumerical example
African countries:African countries: External External debtdebt 1999 (% of exports) 1999 (% of exports)
0 200 400 600 800 1000 1200 1400 1600 1800
BotswanaSwazi land
Seychel lesE quator ial Guinea
South Af r icaE r i tr ea
Cape Ver deLesotho
Maur i tiusGambia, T he
BeninGabon
AngolaBur kina Faso
ZimbabweMozambique
SenegalNiger ia
GhanaKenya
Mal iChadT ogo
Cote d'Ivoi r eUgandaMalawi
Congo, Rep.Comor os
Camer oonGuinea
MadagascarNiger
Centr al Af r ican Republ icT anzaniaE thiopia
Maur i taniaZambia
RwandaBur undi
Guinea-BissauSier r a Leone
Sao T ome and P r incipeSudan
Ceiling
0 50 100 150 200 250 300 350 400 450 500
BotswanaSwazi land
E r i tr eaSouth Af r icaBur kina Faso
UgandaMozambique
Seychel lesCape Ver de
RwandaE quator ial Guinea
BeninChad
LesothoKenya
SenegalT anzania
Centr al Af r icanE thiopia
NigerMal i
Maur i tiusGhana
Gambia, T heComor os
GuineaCamer oonZimbabwe
MadagascarT ogo
MalawiNiger iaBur undi
GabonCote d'Ivoir eSier r a Leone
Maur i taniaSudan
ZambiaAngola
Congo, Rep.Guinea-Bissau
Sao T ome and P r incipe
African countries:African countries: External External debtdebt 1999 1999 ((% of GDP% of GDP))
Ceiling
0 10 20 30 40 50
Congo, Rep.E quator ial Guinea
BotswanaE r i tr ea
Swazi landSeychel les
Niger iaSudan
Gambia, T heT ogo
LesothoChad
Maur i tiusBenin
Cape Ver deMalawi
Centr al Af r ican Republ icMal i
South Af r icaBur kina Faso
Comor osGuinea
Guinea-BissauSenegal
T anzaniaE thiopia
MadagascarNigerGabonGhana
MozambiqueAngola
Camer oonUganda
ZimbabweCote d'Ivoir e
KenyaMaur i tania
Sao T ome and P r incipeRwanda
Sier r a LeoneBur undiZambia
African countries: African countries: External External debt servicedebt service 1999 (% of 1999 (% of exportsexports))
Ceiling
African countries:African countries: ExportsExports 1999 (% of 1999 (% of GDPGDP))
0 20 40 60 80 100 120
RwandaBurundiEritrea
Burkina FasoUganda
MozambiqueTanzaniaEthiopia
Sierra LeoneNigerBenin
Central Af ricanChad
GuineaZambia
Cape VerdeCameroon
KenyaMadagascar
MaliSouth Af rica
ComorosGuinea-Bissau
MalawiBotswana
TogoSenegal
GhanaSao Tome and Principe
NigeriaMauritania
Cote d'IvoireGabon
ZimbabweGambia, The
NamibiaMauritius
SeychellesCongo, Rep.
Equatorial GuineaSwaziland
Average
African countries:African countries: Current Current account balanceaccount balance 1999 (% of 1999 (% of GDPGDP))
-60 -40 -20 0 20
Eritrea
Lesotho
Seychelles
Sudan
Burkina Faso
Gambia, The
Cape Verde
Uganda
Ethiopia
Chad
Ghana
Niger
Tanzania
Benin
Senegal
Cameroon
Guinea
Central Af rican Republic
Burundi
Angola
Mauritius
South Af rica
Rwanda
Kenya
Cote d'Ivoire
Nigeria
Swaziland
Namibia
Botswana
Mauritania
Average
African countries:African countries: Gross Gross foreign reservesforeign reserves 1999 (months 1999 (months of imports)of imports)
0 5 10 15 20 25
Camer oonE quator ial Guinea
GabonCongo, Rep.
ZambiaSeychel les
AngolaSudanNiger
Cote d'Ivoir eGhana
NamibiaT ogo
Cape Ver deMadagascar
ZimbabweChad
GuineaSouth Af r ica
KenyaMalawiSenegal
E thiopiaSier r a Leone
Maur i tiusSwazi landT anzania
Gambia, T heMal i
MozambiqueBur kina Faso
Bur undiGuinea-Bissau
UgandaBenin
Maur i taniaCentr al Af r ican Republ ic
Sao T ome and P r incipeLesothoRwanda
Comor osBotswana
Ceiling
African countries:African countries: Short-term Short-term debtdebt 1999 (% of foreign 1999 (% of foreign reserves)reserves)
0 10 20 30 40 50
BotswanaLesothoUganda
MozambiqueSwazi land
Gambia, T heE thiopia
Bur kina FasoMalawiRwanda
ChadBenin
Cape Ver deMal i
Centr al Af r ican Republ icComor os
GuineaSenegal
Maur i taniaT anzania
KenyaMaur itius
Bur undiT ogo
GhanaMadagascar
Seychel lesNiger
Sao T ome and P r incipeZimbabwe
Cote d'Ivoir eSouth Af r ica
Guinea-BissauSier r a Leone
ZambiaAngola
E quator ial GuineaSudan
Congo, Rep.Gabon
Ceiling
Debt accumulation is, by its Debt accumulation is, by its nature, a nature, a dynamicdynamic phenomenon phenomenonA large stock of debt involves high A large stock of debt involves high
interest payments which, in turn, interest payments which, in turn, add to the external deficit, which add to the external deficit, which calls for further borrowing, and so calls for further borrowing, and so on on Debt accumulation can develop into a Debt accumulation can develop into a
vicious circlevicious circle
How do we know whether a given How do we know whether a given debt strategy will spin out of control debt strategy will spin out of control or not?or not?To answer this, we need a little To answer this, we need a little
arithmetic arithmetic
External debt External debt dynamics dynamics
Recall balance of payments Recall balance of payments equation:equation:BOP = X – Z + FBOP = X – Z + F
wherewhere
FF = capital inflow = capital inflow = = DDFF where where
DDFF = foreign debt = foreign debtCapital inflow, F, thus involves an Capital inflow, F, thus involves an
increase in the stock of foreign increase in the stock of foreign debt, Ddebt, DFF, or a decrease in the stock , or a decrease in the stock of foreign claims (assets)of foreign claims (assets)
So, F is a So, F is a flowflow and D and DF F is a is a stockstock
External External debtdebt dynamicsdynamics
Now assumeNow assumeZ = ZZ = ZNN + r + rDDFF
ZZ = total imports= total importsZZNN = non-interest imports = non-interest importsrrDDFF = interest payments = interest payments
Further, assumeFurther, assumeX = ZX = ZNN
BOP = 0BOP = 0 A flexible exchange rate maintains A flexible exchange rate maintains equilibrium in the balance of payments at equilibrium in the balance of payments at
all times all times
Then, it follows thatBOP = X – Z + BOP = X – Z + DDFF = = 00so that
DDFF = = rDrDFF
In other words:
rD
ΔDF
F
External External debtdebt dynamicsdynamics
So, now we have:
rD
ΔDF
F
Now subtract growth rate of output from both sides:
g-rY
ΔY
D
ΔDF
F
Y
Yg
External debtExternal debt dynamicsdynamics
But what is
This is proportional change in debt ratio:
Y
ΔY
D
ΔDF
F
??
Y
D
Y
DΔ
Y
ΔY
D
ΔDF
F
F
F
This is an application of a simple rule of arithmetic:
%%(x/y) = (x/y) = %%x - x - %%yy
External debtExternal debt dynamicsdynamics
z = x/yz = x/y
log(z) = log(x) – log(y)log(z) = log(x) – log(y)
log(z) = log(z) = log(x) - log(x) - log(y)log(y)
But what is But what is log(z) log(z) ??
So, we obtain
z
Δz
z
1
dt
dz
dt
dlog(z)Δlog(z)
y
Δy
x
Δx
z
Δz
Q.E.D.
Proof Proof
We have shown thatWe have shown that
grd
Δd
where
Debt ratio
Time
r r g g
r = gr = g
r r g g
Need economic Need economic
growth to keep growth to keep
the debt ratio the debt ratio
under controlunder control
Y
Dd
F
Debt, interest, and Debt, interest, and growth growth
It is important to keep It is important to keep economic economic growthgrowth at home at home aboveabove – or at least – or at least not far below – the not far below – the world rate of world rate of interestinterest
Otherwise, the debt ratio keeps rising over Otherwise, the debt ratio keeps rising over timetime
External deficits can be OK, even over External deficits can be OK, even over long periods, as long as external long periods, as long as external debt does not increase faster than debt does not increase faster than output and the debt burden is output and the debt burden is manageable to begin with manageable to begin with
A rising debt ratio may also be OK as A rising debt ratio may also be OK as long as the borrowed funds are long as the borrowed funds are used efficientlyused efficiently
Once again, Once again, high-quality investment high-quality investment is keyis key
What can we learn What can we learn from this? from this?
Let us now study the interaction Let us now study the interaction between trade deficits, debt, and between trade deficits, debt, and growthgrowth
Two simplifying assumptions:Two simplifying assumptions:DDtt = aY = aYt t (omit the superscript F, so D = (omit the superscript F, so D =
DDFF))
Trade deficit is constant fraction Trade deficit is constant fraction aa of of outputoutput
YYtt = Y = Y00eegtgt
Output grows at constant rate Output grows at constant rate gg per per yearyear
Y
t
Exponential growth
Debt dynamics: Debt dynamics: Another look Another look
Y
time
Exponential growth implies a linear logarithmic growth path whose slope equals the growth rate
log(Y)
time
1
g
Pictures of growth Pictures of growth
T
0
tT dtΔDD at time T
Debt as the sum of Debt as the sum of past deficits past deficits
dteaYdtΔDDT
0
gt0
T
0
tT
T
0
tT dtΔDD at time T
DebtDebt as the sum of as the sum of past deficits past deficits
dteaYdtΔDDT
0
gt0
T
0
tT
gt0
T
0
gt0
T
0
tT eg
1aYdteaYdtΔDD
Evaluate this Evaluate this integral integral between 0 and between 0 and TT
T
0
tT dtΔDD at time T
DebtDebt as the sum of as the sum of past past deficitsdeficits
dteaYdtΔDDT
0
gt0
T
0
tT
gt0
T
0
gt0
T
0
tT eg
1aYdteaYdtΔDD
Evaluate this integral between 0 and T
1eg
1aYe
g
1aYdteaYdtΔDD gT
0gt
0
T
0
gt0
T
0
tT
T
0
tT dtΔDDSo, as T goes to So, as T goes to infinity, Dinfinity, Dtt becomes becomes infinitely large.infinitely large.But that may be quite But that may be quite OK in a growing OK in a growing economy!economy!
at time T
Debt as the sum Debt as the sum of past deficitsof past deficits
T
0gt
0
T
T
Y
YeY
g
a
Y
D
Debt as the sum Debt as the sum of past deficits of past deficits
T
0gt
0
T
T
Y
YeY
g
a
Y
D
T
0
T
0gt
0
T
T
Y
Y1
g
a
Y
YeY
g
a
Y
D
Debt as the sum of Debt as the sum of past deficits past deficits
T
0gt
0
T
T
Y
YeY
g
a
Y
D
T
0
T
0gt
0
T
T
Y
Y1
g
a
Y
YeY
g
a
Y
D
gT
T
0
T
0gt
0
T
T e1g
a
Y
Y1
g
a
Y
YeY
g
a
Y
D
Debt as the sum of Debt as the sum of past deficits past deficits
So, as T goes So, as T goes to infinity, to infinity, DDTT/Y/YTT approaches approaches the ratio the ratio a/ga/g
T
0gt
0
T
T
Y
YeY
g
a
Y
D
T
0
T
0gt
0
T
T
Y
Y1
g
a
Y
YeY
g
a
Y
D
gT
T
0
T
0gt
0
T
T e1g
a
Y
Y1
g
a
Y
YeY
g
a
Y
D
g
a
Y
D
T
Tlim T
Debt as the sum of Debt as the sum of past deficits past deficits
SupposeSupposeTrade deficit is 6% of GNPTrade deficit is 6% of GNP
a = 0.06a = 0.06
Growth rate is 2% per yearGrowth rate is 2% per yearg = 0.02g = 0.02
Then the debt ratio approachesThen the debt ratio approachesd = a/g = 0.06/0.02 = 3d = a/g = 0.06/0.02 = 3
This point will be reachedThis point will be reached regardless of the initial regardless of the initial position ...position ...... as long as ... as long as aa and and gg remain remain
unchangedunchanged
Debt ratio
Time
3
Numerical Numerical example example
Must adjust policiesMust adjust policies
Must eitherMust eitherReduce trade deficitReduce trade deficit by stimulating by stimulating
exports or by reducing imports, orexports or by reducing imports, or
Increase economic growthIncrease economic growth
Otherwise, the debt ratio will reach Otherwise, the debt ratio will reach unmanageable levels, unmanageable levels, automaticallyautomaticallyNo country can afford an external No country can afford an external
debt equivalent to three times debt equivalent to three times annual outputannual output
What to conclude?What to conclude?
Because the debt burden then Because the debt burden then becomes becomes unbearableunbearableRecall our earlier numerical Recall our earlier numerical
exampleexamplewhere we looked at the relationship where we looked at the relationship
between the between the debt ratiodebt ratio and the and the debt debt burdenburden
Korea is a case in pointKorea is a case in pointIts Its export-oriented growth strategyexport-oriented growth strategy
reduced the numerator and increased reduced the numerator and increased the denominator of the debt ratio, the denominator of the debt ratio, thereby quickly reducing the country’s thereby quickly reducing the country’s debt burden debt burden
An An import-substitution strategyimport-substitution strategy would would reduce both numerator and denominator reduce both numerator and denominator with an ambiguous effect on the debt with an ambiguous effect on the debt burdenburden
And why not?And why not?
Suppose that r = 0.06 (as before)
D/Y = 3D/Y = 3 (our new number)
A/Y = 0.05 (as before)
X/Y = 0.20 (as before)
Here we have Here we have a country a country whose entire whose entire export export earnings do earnings do not suffice to not suffice to service its service its debtsdebtsHeavy Heavy
burden, burden,
indeed!indeed!
15.10.2
30.060.05q
Y
XY
Dr
Y
A
q
F
Numerical Numerical example, againexample, again
Suppose that r = 0.06 (as before)
D/Y = 2D/Y = 2 (our new number)
A/Y = 0.05 (as before)
X/Y = 0.20 (as before) Heavy Heavy
burden, still!burden, still!
85.00.2
20.060.05q
Y
XY
Dr
Y
A
q
F
Numerical Numerical example, againexample, again
Suppose that r = 0.06 (as before)
D/Y = 1D/Y = 1 (new number)
A/Y = 0.05 (as before)
X/Y = 0.20 (as before) Heavy Heavy
burden, still!burden, still!
55.00.2
10.060.05q
Y
XY
Dr
Y
A
q
F
Numerical Numerical example, againexample, again
Suppose that r = 0.06 (as before)
D/Y = 0.4D/Y = 0.4 (new number)
A/Y = 0.05 (as before)
X/Y = 0.20 (as before) Heavy Heavy
burden, still!burden, still!
37.00.2
4.00.060.05q
Y
XY
Dr
Y
A
q
F
Numerical Numerical example, againexample, again
Suppose that r = 0.06 (as before)
D/Y = 0.4D/Y = 0.4 (as before)
A/Y = 0.05 (as before)
X/Y = 0.30 (new number)Heavy burden, Heavy burden,
but but
manageable!manageable!
25.00.3
4.00.060.05q
Y
XY
Dr
Y
A
q
F
Numerical Numerical example, againexample, again
0 50 100 150 200 250 300 350 400 450 500
BotswanaSwazi land
E r i tr eaSouth Af r icaBur kina Faso
UgandaMozambique
Seychel lesCape Ver de
RwandaE quator ial Guinea
BeninChad
LesothoKenya
SenegalT anzania
Centr al Af r icanE thiopia
NigerMal i
Maur i tiusGhana
Gambia, T heComor os
GuineaCamer oonZimbabwe
MadagascarT ogo
MalawiNiger iaBur undi
GabonCote d'Ivoir eSier r a Leone
Maur i taniaSudan
ZambiaAngola
Congo, Rep.Guinea-Bissau
Sao T ome and P r incipe
African countries:African countries: External External debtdebt 1999 1999 ((% of GDP% of GDP))Recap
Recap
0 10 20 30 40 50
Congo, Rep.E quator ial Guinea
BotswanaE r i tr ea
Swazi landSeychel les
Niger iaSudan
Gambia, T heT ogo
LesothoChad
Maur i tiusBenin
Cape Ver deMalawi
Centr al Af r ican Republ icMal i
South Af r icaBur kina Faso
Comor osGuinea
Guinea-BissauSenegal
T anzaniaE thiopia
MadagascarNigerGabonGhana
MozambiqueAngola
Camer oonUganda
ZimbabweCote d'Ivoir e
KenyaMaur i tania
Sao T ome and P r incipeRwanda
Sier r a LeoneBur undiZambia
African countries: African countries: External External debt servicedebt service 1999 (% of 1999 (% of exportsexports))
RecapRecap
Borrowers often renegotiate the Borrowers often renegotiate the terms of their loans in mid-stream terms of their loans in mid-stream in order toin order to delay repayments, that is, extend the delay repayments, that is, extend the
maturity of the loans, or tomaturity of the loans, or toreduce interest payments by replacing reduce interest payments by replacing
high-interest loans by loans with lower high-interest loans by loans with lower interestinterest
Sometimes, outright Sometimes, outright debt debt forgivenessforgiveness may be called for may be called forBut debt forgiveness is But debt forgiveness is no substitute for no substitute for
sound economic policiessound economic policies Remember: our formula Remember: our formula d = a/gd = a/g holds in holds in
the long run regardless of initial the long run regardless of initial conditions conditions
Debt renegotiations Debt renegotiations and forgiveness and forgiveness
External borrowing is a necessary External borrowing is a necessary and natural part of economic and natural part of economic developmentdevelopmentThis requires countries that borrow to This requires countries that borrow to
invest the funds borrowed in invest the funds borrowed in high-high-quality capitalquality capital
This is necessary to be able to service This is necessary to be able to service the debt the debt
If debt burden becomes too heavy, If debt burden becomes too heavy, must either must either reduce deficitreduce deficit or or spur spur growthgrowthIt is always desirable anyway to do It is always desirable anyway to do
everything possible to encourage everything possible to encourage economic growtheconomic growth
Rapid growth allows more foreign Rapid growth allows more foreign borrowing without making the debt borrowing without making the debt burden unmanageable burden unmanageable
In conclusion