The amount of debt that is borrowed from organizations of other countries is known as external debt. Countries can borrow some amount from foreign lenders which include governments, international financial firms, and commercial banks. These loans are given to a country, and they must be returned along with interest in the same currency in which the loan was received. The external debt can be paid by exporting goods to the lending country.
In some cases, there might be a situation that a country with a weak economy cannot afford to return the debt. This happens when that nation fails to produce and export goods to the lending country. So for this, there is an organization that keeps track of the debt. Adding to that, the World Bank also manages the external debts of the country, and it publishes a report on the statistics of debts.
So if a country fails to pay the debt or if it refuses, it is banned from any more assets. The lending countries withhold the allowance of goods to these countries. This results in collapsing the economy of the country. The currency rate of that nation is affected.
Results of High External Debt
If the external debt of a country is quite high, it goes into an economic crisis. If financial market find out that it is impossible for the country to pay back the debt, they hold back it’s further borrowings. Adding to that, the interest rate is also increased. Eventually, the economy of becomes unstable because of lack of credit. The progress of the nation is greatly affected due to this problem.
Countries with Most External
Following is a list o some of the nations that have the most external debt as per the studies of Central Intelligence Agency.
|Sr. No.||Country||External Debt||Date of Information|
|1||European Union||$29,270,000,000,000||December 2016|
|2||United States||$17,910,000,000,000||March 2016|
|3||United Kingdom||$8,126,000,000,000||March 2016|
|4||France||$5,360,000,000,000||31 March 2016|
|5||Germany||$5,326,000,000,000||31 March 2016|
|6||Netherlands||$4,063,000,000,000||31 December 2016|
|7||Luxembourg||$3,781,000,000,000||31 March 2016|
|9||Ireland||$2,470,000,000,000||31 March 2016|
|10||Italy||$2,444,000,000,000||31 March 2016|
|11||Spain||$2,094,000,000,000||31 March 2016|
|12||Australia||$1,670,000,000,000||31 December 2017|
|13||Switzerland||$1,664,000,000,000||31 March 2016|
|14||Canada||$1,608,000,000,000||31 March 2016|
|16||Hong Kong||$1,567,000,000,000||December 2017|
|17||Belgium||$1,281,000,000,000||31 March 2016|
|18||Sweden||$939,900,000,000||31 March 2016|
|19||Norway||$642,300,000,000||31 March 2016|
|20||Austria||$630,800,000,000||31 December 2017|
European Union With Most External Debt:
Twenty-eight states united by a political and economic union make up European Union. It has the most amount of external debt as per the statistics of the year 2016, published by CIA. The total debt of EU is about $29,270,000,000,000. EU has a proper system of maintaining its wealth. With the monetary union of these states, it’s important to keep a check and balance to ensure that none of the states has to face financial crisis. Each state has some financial obligations as per the Maastricht treaty in order to maintain the economy.
The United States has Massive External Debt:
Following the European Union, comes the United States with the most external debt. The country has a total debt of 17.91 trillion US dollars as per the statistics of 2016. About 4/5th of the total external debt of the US is denominated in its own currency (USD). Foreign lenders foresee dollar as the reserve currency of the world, and that is why they are willing to hold the debt instruments of UD dollar.
The United Kingdom Has Third Most External Debt
United Kingdom is known to be one of the major powers in the world and especially in the entire European continent. It comes third on the list of countries that have the most external debt. The country holds a total external debt of about 8.126 trillion US Dollars as per the statistics of year 2016. The external debt is about 430% of GDP.
France: External Debt 5.3 Trillion Dollars:
France is known to be one of the most modern countries in the world. It is also one of the leading countries in the European region. Fourth on the list comes France with a total debt of 5.3 trillion US dollars. The French government is quite diversified in all sectors. The large companies over here are entirely and partially privatized. But the major sectors including the energy, transport, and defense are mostly under the jurisdiction of the government. The economy of France has benefited a lot from tourism in the last few years, and it is one of the places that got most foreign tourists. The leaders of France are greatly committed towards promoting capitalism.
Better Economic Conditions in France
The GDP of France has also increased in the last few years, and the unemployment rate has also decreased now. President Emmanuel has launched many economic reforms in order to improve the economic situation in the country. He also started the campaign to reform the labor code of France. A wide range of reforms were brought forward to make it quite easier for the firms to hire and fire the employees. The government of France also plans to reduce the corporate taxes in the upcoming years. The tax rate for businesses is expected to be decreased from 33.3% to about 25% by the year 2022.
Germany: 5.32 trillion US dollars
Germany is the largest economy in the European region. It is also one of the critical members of the economic, defense and political organizations of the whole European continent. The country has brought in many reforms and has spent a considerable amount in order to bring productivity. Adding to that, the nation also struggles to keep the wage standards as per the western standards. It is also known to be the fifth largest economy worldwide.
Reforms to Improve the Economy of the Nation:
Gerhard Schroeder brought in many reforms to improve the economy of the nation during his reign (1998 – 2005). At that time the country was suffering from a high rate of unemployment and low average growth. That plan didn’t go so well. Later on, from 2008 to 2009, the additional reforms in the second term of Angela Merkel helped in increasing the total budget deficit of the nation. The budget of the country hit a surplus of 0.7% in 2017. Germany has a total external debt of 5.32 trillion US dollars.
Netherlands: 4.06 trillion US Dollars
The Netherlands is considered to be the fifth largest economy of the European continent. It plays an essential role as the transportation hub in entire Europe. The primary focus of the industry is on food, electrical supplies and machinery, chemical and petroleum refining. The industrial relations between the government and the employees are quite good. Due to this, the unemployment rate is quite low over here.
The country is also the second largest agricultural exporter and that is because of the stable food processing industry and better agricultural system. During the financial crisis, the government hit a budget deficit of 5.3% of the GDP. After the protracted recession from 2009 to 2013, the economic growth of the country started progressing in 2014. In order to improve the public finances of the Netherlands, Prime Minister Mark Rutte implemented many austerity measures. Because of these reforms, the budget hit a surplus of 0.7% of the total GDP. The economic growth also rose to 3.2%. Like other nation, the government of the Netherlands also plans to improve the financial conditions. This will help in providing better jobs and standard living conditions to the public. As per the recent report of Central Intelligence Agency, the country has a total external debt of $ 4.06 trillion.