Global Economy Sees Sharp Contraction in Short-term Debt Flows, FDI Remains Steady

For the first time since the financial crisis, principal repayments on external debt held by low- and middle-income countries exceeded lending inflows, according to International Debt Statistics 2017.

Short-term debt flows reversed to an outflow of $398 billion, about 3 times higher than the inflow in 2014. Meanwhile long-term debt flows remained positive but plummeted to $214 billion, half the previous year’s level. As a result, external debt stock declined by 6 percent, to $6.7 trillion, equivalent to an average of 25 percent of Gross National Income (GNI).

Looking beyond debt, foreign direct investment equity flows to low- and middle-income countries proved resilient but, with debt flows negative, net financial flows (debt and equity) fell to $377 billion, one third the level reported for 2014.

Trends in debt and equity flows and their policy implications vary from country to country. More specific information is contained in International Debt Statistics 2017 including an analysis of key trends and developments.

The combined external debt stock of low- and middle- income countries fell 6 percent, to $6.7 trillion.  Net debt outflows and the effect of exchange rate changes vis-à-vis the U.S. dollar were the main contributors to the decline. External debt stocks remained moderate in relation to GNI, an average of 25 percent, and to exports, an average of 98 percent.

Net debt outflows in 2015 were $186 billion, a marked contrast to inflows of $540 billion in 2014, and reflected a sharp contraction in short-term debt flows, which registered a $398 billion outflow (compared to net inflows of $130 billion in 2014).

Net financial flows (debt and equity) fell to $377 billion, a third of the 2014 level ($1,157 billion). Foreign direct investment (FDI) proved resilient, holding steady at $543 billion in 2015.

Portfolio equity flows remained positive for the fourth successive year but fell to $20 billion, one quarter the 2014 level, reflecting investor uncertainty centered around prospects for China.

As a share of total GNI in low and middle-income countries, net financial flows fell by 1.5 percent from an average of 4.9 percent in 2013-2014.

High-income countries reporting quarterly external debt confirm their debt levels are, on average, much higher than in low- and middle-income countries. For most high-income countries government debt-to-GDP ratios (external and domestic debt combined) moderated in 2015.

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