Types of External Debts
External debts are generally of three types, namely Public and Publicly Guaranteed Debts, Loans offered by IMF, and Non-Guaranteed Private Sector External Debt. These three are explained below:
1. Public and Publicly Guaranteed Debts: These debts are long-term external debts borrowed from the government of another country and/or their representatives to meet the required obligation.
2. Loans offered by IMF: The International Monetary Fund (IMF) provides financial assistance to its member countries through various types of loan programs. Stand-by arrangements, Extended Fund Facilities, Flexible Credit Lines, Rapid Financing Instruments, etc. are some of the loan forms offered by the IMF.
3. Non-Guaranteed Private Sector External Debt: These debts are long-term external debts borrowed from the government of another country and/or their representatives where the debtors do not guarantee repayment.
4. Central Bank Deposits: Central bank deposits are more of a country’s international reserves. International reserves are assets held by the country’s central bank, often in foreign currencies and other internationally recognized assets, that can be used to stabilize the country’s economy.
External Debt | Types, Effects, Merits and Demerits
External Debt can be defined as money borrowed from outside the country from sources like foreign governments, International Monetary Funds (IMF), Foreign Direct Investments (FDI), Foreign Portfolio Investments (FPI), etc. As people and businesses sometimes need to borrow money to pay their expenses, the same goes for the government of any country. The government sometimes may need to borrow money from either inside the country or outside the country. The borrowed money is known as Debt, and the modes of borrowing money can be classified into two categories – External Debt and Internal Debt.