The balance of external debt .. Is it a tool for growth or a path to the abyss?

The concept of debt refers to the obligation that a person or state has to pay or reintegrate, and many resort to borrowing when they want to invest in order to thrive in life, such as buying a home or setting up a business.

In a report published by the Spanish magazine "Moi Negotios e Economia", the writer Cesar Lakhoud sees that external debt is subject to the logic of the market itself, as countries borrow out of a central idea that is to enhance their economic development in various social and economic fields such as health, education and infrastructure.

The writer defined the debt as a set of capital owed by companies and governments in a particular country, with which he owes to other countries or to banks or international organizations.

The external debt represents the sum of all the debts of a country, which are generally in dollars, with foreign bodies, and includes the loans granted by the foreign financial agents of the state (public debt) and individuals (private debt).

Debt logic
The main reason for indebtedness lies mainly in the face of a persistent financial deficit as a result of the discrepancy between state expenditures and incomes, and for this reason they are forced to issue debt bonds motivated by additional interest income.

If the state faces a problem in paying its debts, the interest increases to a degree that could lead to the abyss of bankruptcy, which imposes a serious impact on the independent economic policies of this country and on economic development.

The writer added that we can consider that the debt logic is not bad, because it allows countries to preserve their own resources and obtain funds from abroad to develop infrastructure, or use or process goods and services as well as the production and export of those goods and services or their import.

But indebtedness can become a problem if this debt is misused, which leads to difficulty in paying it off and making it an obstacle to economic development.

The temptation of governments to increase debt is also harmful, because politics have shorter cycles of the economy. Accordingly, the debts acquired must be paid within a specified period of time in the medium and long term, even if electoral revenues are exchanged in the short term.

The author explained that the Spanish public debt began to show great changes in its structure starting in the year 1975.

External debt
It is clear from the recent statistics, that the times of the economic crisis are the times when the debt returns to accumulation while the times of the economic boom are devoted to paying off the debt.

The beginning of the international economic and financial crisis in 2008 also affected the increase in the level of debt, as the increase in public spending became indispensable to alleviate the impact of the stagnation of the internal economy.

The writer mentioned that the austerity policies that are implemented as of the year 2011, especially the reduction of public spending and tax increases, have led to an increase in government sector indebtedness, reaching maximum levels of 100.4% of GDP (624,041 million euros) in 2014.

In recent years, public debt growth has stabilized, although the corresponding debt repayment for a continuous period of economic growth has not yet begun.

According to the findings of the debt observatory of the Independent Financial Responsibility Authority, according to its president, Jose Luis Escriva, Spain will not be able to reduce the weight of all its public debt by at least 60% of GDP until 2035, and all this with a neutral economic horizon, and continuity in Reducing public deficits and generating the basic surplus.

The author stated that 60% is the threshold mentioned in the European Union Performance Treaty, which is a firm commitment that only Estonia, Luxembourg, Bulgaria, the Czech Republic, Estonia, Sweden, Lithuania, Romania, Latvia, and Sweden, as well as Malta, Slovakia, Poland, the Netherlands, Finland, and Germany meet.

The author pointed out that some of the countries' debt reduction policies lie mainly in paying off debts, restructuring them and renegotiating new terms of payment or interest rates with suppliers, as well as not paying debts that will have serious consequences for the state's reputation, or reciprocity of debt.

For Spain, debt can be paid in the future only by restructuring the debt in terms of interest rates or reducing them in the medium and long term.