South Asia
External debt and resource flows

Debt and indicators
Aggregate resource flows
Key indicators

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South Asia was relatively unaffected by the East Asian financial crisis largely because of small current account deficits (except in Pakistan), financial sector controls that have prevented lending booms, and banking systems’ comparatively low levels of short-term external debt. Stock market declines in India and Pakistan in November owed more to the fall of the government in India and the judiciary crisis in Pakistan. GDP growth in South Asia declined from 6.4 percent in 1996 to 5.6 percent in 1997 because of stagnation in India’s industrial sector and a slowdown in Pakistan’s agricultural output. Net transfers to South Asia increased from $8 billion in 1996 to an estimated $9 billion in 1997.

Debt and indicators

OFFICIAL DEBT INCREASES. External long-term debt of South Asian countries increased to $139 billion in 1997, up slightly from 1996 due to disbursements from official creditors. Despite recent increases in private flows (particularly to India), official creditors continued to account for most long-term debt (75 percent in 1997). The share of multilateral debt in total official debt has increased in recent years, from 44 percent in 1990 to 55 percent in 1997. The region accounted for 13 percent of developing countries’ official debt in 1997.

DEBT INDICATORS IMPROVE SLIGHTLY IN 1997… The ratio of debt to exports fell from 194 percent in 1996 to an estimated 180 percent in 1997, while the debt service ratio was roughly stable at about 21 percent. The 9 percent increase in export revenues more than compensated for the increase in the dollar value of debt. Nevertheless, debt indicators remain high relative to the average for developing countries (134 percent for the debt to exports ratio and 17 percent for the debt service ratio in 1997).

…BUT DEBT INDICATORS HAVE FALLEN SIGNIFICANTLY DURING THE 1990S. Average debt indicators in South Asia have improved steadily since 1990, when the debt to exports ratio was 317 percent and the debt service ratio was 28 percent. The improvement in debt indicators has several causes, including the more than doubling of export receipts in dollar terms since 1990, the maintenance of low levels of arrears and the avoidance of debt restructurings (which have enabled these countries to avoid the accumulation of interest penalties and rescheduled debt that has occurred in many other low-income countries), and the high share of concessional debt (53 percent of total debt in 1997, compared with the 20 percent average for developing countries).

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Aggregate resource flows

The $2 billion increase in debt flows increased net long-term resource flows to South Asia from $13 billion in 1996 to $15 billion in 1997, the highest level of the 1990s. By contrast, grants were stable at about $2 billion and equity flows declined slightly, as portfolio equity dropped to $3 billion compared with $5 billion in 1996.

OFFICIAL DEVELOPMENT FINANCE INCREASES. Net official development finance rose from $5 billion in 1996 to an estimated $6 billion in 1997. As in previous years, nonconcessional loans accounted for a small share of official finance ($0.2 billion in 1997), with the remainder provided as grants or concessional loans. Despite the increase in 1997, net official finance remains somewhat below the $7 billion in official finance received in 1990, implying a 22 percent fall in real terms over this period. This decline reflects the general fall in concessional assistance during the 1990s. South Asian countries accounted for 15 percent of concessional flows to developing countries in 1997, up slightly from 12 percent in 1990.

NET PRIVATE FLOWS JUMP. Net private flows to South Asia totaled $9 billion in 1997, about the same as in 1996 but up from the $5 billion average from 1990—95. Private nonguaranteed debt flows were the main source of the increase, rising from $1.0 billion in 1996 to $2.5 billion in 1997. India received $10 billion in net private flows (up from $6 billion in 1996) and Pakistan a little less than $2 billion while some of the region’s smaller countries had negative private flows. Net FDI to India rose by about $500 million (to $3 billion) and portfolio equity flows declined; the bulk of the increase in flows to India came from bond issues and loan commitments (almost $9 billion in total).

SHARE OF DEBT IN PRIVATE FLOWS HAS DECLINED. Despite the strong increase in private debt flows in 1997, their importance in long-term flows to South Asian countries has declined considerably in recent years. Debt flows accounted for 65 percent of private flows in 1992 but only 23 percent in 1997, as FDI and portfolio equity flows have increased considerably since then.

Key indicators
Billions of U.S. dollars

a. Preliminary.

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GNP per capita, 1996: $380

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