Is foreign debt a problem?

Foreign debt is the whole amount owed overseas through a country at an exact moment in time. Debt is a problem since

• High debt imply high interest payments

• The opportunity cost of interest payments is public services forgone.

• Loans are repaid within foreign currency which has to be earned during a surplus onto the current account balance.

Implications: Foreign debt good only when this is the result of financing investment in suitable productive capacity. Increasing output permits debt and interest to be repaid.