Management of Foreign Public Debt:

Sound macro economic management of a country requires efficient and effective foreign debt managements also.  It is necessary to forecast and plan the requirement or quantum of external borrowing and the consequent debt service payments or obligations. The governments especially the developing nations should take into consideration the external borrowings and resultant service obligation while designing the monetary and fiscal policies. It has been observed by the International Monetary Fund that only one - fifth of the developing nations are systematically managing their foreign debt.  The two important issues concerning foreign debt are:

1) The extent of regulation of foreign debt and
2) Its composition.

With regard to regulation, in several countries including India, the Central government controls and regulates the external borrowings. Not only the individuals, even the sub central governments do not have access to the external borrowings directly. 

External debt can be repaid or serviced only through foreign exchange earnings which is possible by increasing the export earnings. If foreign borrowings are invested in such industries and activities which bring foreign exchange so that the foreign loans can be repaid and serviced effectively. On the other hand if the foreign loans are utilized for unproductive purposes repayment of the loans become difficult.  The size or aggregate level of foreign debt depends on the growth rate of the economy and its export performance.  It is necessary that the growth rate of the economy should be faster than the rate of interest on long term borrowing to keep the country solvent.  Also it is necessary that the rate of growth of exports exceed the rate of interest to avoid any liquidity crisis. In some countries the debt service exports ratio limit is fixed for efficient debt management.  For instance in Philippines a 20 percent limit is fixed since the balance of payments crisis in 1969- 70.  In some countries statutory limits are imposed on the quantum of external borrowing itself. Of course, it's not the volume of debt alone that matters but the efficient management of it is important.