What is Foreign Debt?

Foreign debt is money borrowed by a government, corporation or private household from another country's government or private lenders. Foreign debt also includes obligations to international organizations such as the World BankAsian Development Bank (ADB), and the International Monetary Fund (IMF). Total foreign debt can be a combination of short-term and long-term liabilities.

Foreign debt, also known as external debt, has been rising steadily in recent decades, with unwelcome side-effects in some borrowing countries. These include slower economic growth, particularly in low-income countries, as well as crippling debt crises, financial market turmoil, and even secondary effects such as a rise in human-rights abuses.

Understanding Foreign Debt

A government or a corporation may borrow from a foreign lender for a range of reasons. For one thing, local debt markets may not be deep enough to meet their borrowing needs, particularly in developing countries. Or foreign lenders might simply offer more attractive terms. For low-income countries especially, borrowing from international organizations like the World Bank is an essential option, as it can provide funding it might not otherwise be able to attain, at attractive rates and with flexible repayment schedules.

The World Bank, in conjunction with the IMF and the Bank for International Settlements (BIS), gathers short-term foreign debt data from the Quarterly External Debt Statistics (QEDS) database. Long-term external debt data compilation is also collectively accomplished by the World Bank, individual countries that carry foreign debt, and multilateral banks and official lending agencies in major creditor countries.