CEIC News@lert: Thematic Analysis of Capital Flows to Emerging Markets: External Public Debt

November 26, 2013 OVERVIEW While government debt has traditionally been considered as having minimal credit risks relative to corporate debts, the different characteristics of the individual countries’ government finances can result in significant differences between these securities. In addition to debt in distressed (mostly European) economies, some emerging markets are typically associated with high risk premiums. However, not all government debts are created equal. Notwithstanding the differing government debt risk premiums across countries, the types, origins and maturity of these debts are all factors that merit further examination. In particular, public external debts are typically deemed to be less resilient to financial shocks than debts obtained through domestically held debts. A CLOSER LOOK AT GOVERNMENT DEBT Singapore, for instance, reported government debt equivalent to approximately 111.41% of its Gross Domestic Product as of December 2012. However, a closer examination of its debt composition paints a more benevolent position. Despite outstanding public debt amounting to SGD388.07 billion (or USD306.16 billion) as of the third quarter of 2013, all of these debts are practically domestic debts not used for funding government operations. Instead, these domestic debt securities are typically issued to help develop Singapore’s domestic bond market (by providing a risk-free benchmark for other investment instruments) and for its investment needs (particularly its national defined contribution pension, the Central Provident Fund). This contrasts with the levels of debt incurred from non-residents by its southern neighbour, Indonesia. As of the third quarter of 2013, Indonesia’s public external debt accounted for 58.02% of public debt, somewhat increasing the country’s exposure to global shocks. This is partially exacerbated by the relatively high proportion of non-rupiah denominated debt (approximately 47.55% during the same period), which increases the country’s exposure to foreign exchange fluctuations. The latter has become increasingly prominent given the sharp depreciation of the rupiah – the government has a lower scope of trading off debt concerns for higher inflation (by monetising its debt in extreme cases). DECOMPOSING PUBLIC DEBT Higher public external debt (relative to many of its regional peers) merits further examination of Indonesia’s public finances. The currency denomination of Indonesia’s public debt does not appear to be particularly reassuring. While its debt remains largely denominated in rupiah, there is a significant amount in foreign currency (approximately 44.76%), making it more vulnerable to depreciation of the rupiah and limiting the ability to reduce the debt burden during inflationary periods. CAVEATS ON PUBLIC DEBT STATISTICS While external debt figures can be extremely useful for evaluating potential exposure to global shocks, these statistics should not be viewed in isolation without assessing the overall characteristics of the underlying economy – in general, developed economies are less prone to these exposures. For example, US Treasury Securities, which account for 99% of total federal debt, are held by an increasing proportion of non-residents, constituting 34.13% of US Treasury Securities during the first quarter of 2013 compared to 18.79% held during the first quarter of 2000 or 30.36% during the first quarter of 2010. However, these increased proportions of non-resident holdings were generally taken as a “badge of honour”, reflecting a combination of increased capital mobility and a positive perception of US Treasury Securities as a safe investment tool. Despite that, uncertainties over these securities of late (largely due to its fragmented political structure with its executive and legislature branch polarised along party lines) mean that these foreign holdings are increasingly perceived as a risk factor. USING PUBLIC DEBT STATISTICS CEIC Data Manager can help provide users with an overview of public debt with its rich repository of public debt information. For a broad overview of the statistics, the CEIC Data Manager (CDM) provides a one-stop overview of government debt and the associated fiscal balances in the Global Economic Monitor Topic of the World Trend Database. Country-specific statistics are mostly obtained from official sources (most notably the countries’ respective central banks and their ministries of finances) and can be located under the “Government and Public Finance” statistics of each country databases in the CDM. Where available, these sections may be supplemented by public debt statistics from other private or quasi-government sources. Disaggregation of these debts may also be available under the same section; disaggregation includes composition of public debt by maturity, origin of debtors and debt denomination, among others. Alternatively, users may locate information on government external debt, either under the “Government and Public Finance” statistics, or the “Balance of Payments” statistics of each country. Additional statistics obtained through direct arrangement with the source providers may also be available under the Premium Databases. Where applicable, or when data are unavailable from national sources, comparable figures from the International Monetary Fund and the World Bank are provided to supplement analyses – this information may also provide users an idea of the differences between the national and international presentations. Back to Blog
26th November 2013 CEIC News@lert: Thematic Analysis of Capital Flows to Emerging Markets: External Public Debt

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