What are the factors that contribute to the external debt-service ratio in India
India's Finance Minister states that the external debt-service ratio is within the comfort zone. Explore the factors that influence this ratio.
Factors that contribute to the external debt-service ratio in India include:
- Export earnings: Higher export earnings can reduce the ratio as it increases the country's capacity to service its external debt.
- Import costs: If a country relies heavily on imports, it may lead to increased debt-servicing obligations and a higher ratio.
- Interest rates: Higher interest rates may increase debt-service costs and, consequently, the ratio.
- Exchange rates: Fluctuations in exchange rates can affect debt-servicing obligations, especially if the local currency weakens against the currency in which the debt is denominated.
- Economic growth: Strong economic growth can boost a country's ability to generate income and improve its capacity to service external debt, potentially reducing the ratio.
- Loan terms: Favorable loan terms, such as longer repayment periods and lower interest rates, can mitigate the burden of debt-service payments.
- Foreign investments: Increased foreign investments can improve a country's external finances and alleviate debt-service pressures.
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