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.