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Emerging Markets – External Debt

Trading Term

External debt is the portion of a country’s liabilities owed to non‑residents, including sovereign bonds, syndicated loans, and private sector borrowing. Currency composition (USD, EUR) and maturity structure shape refinancing risk.

Vulnerabilities: High external debt relative to exports or reserves increases sensitivity to dollar liquidity and risk‑off episodes. Corporate external debt—especially unhedged—can create systemic risk if FX depreciation inflates liabilities and constrains investment.

Policy tools: Prudential limits, reserve accumulation, and development of local‑currency markets reduce dependence on external borrowing. Transparent debt management offices and medium‑term strategies improve market confidence.

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