External Debt — Mains Strategy

Mains Strategy

Start with the residence-based definition and identify the borrower coverage. Distinguish the country's external debt from sovereign debt before assessing vulnerability. A dated official figure can anchor the answer, but the analysis should explain the composition and payment obligations behind it.

Organise the body around liquidity, currency exposure and sustainability. Remaining maturity reveals near-term obligations, while original maturity describes the initial contract. A depreciation can raise the domestic-currency burden of foreign-currency debt, but the net effect depends on revenues, assets and hedges. Valuation changes in the reported stock should also be separated from new borrowing.

Use ratios carefully. Debt relative to GDP and reserves relative to debt provide different information; neither proves that each borrower can repay. Recommend assessment of payment schedules, sectoral exposures and financing conditions alongside the aggregate. Conclude with a conditional judgement based on the combined evidence, rather than treating a single debt level or reserve-coverage ratio as a complete measure of safety.