The Impact of Public Indebtedness on the Balance of Payments Equilibrium

Although it is generally admitted that, when the public authorities of a country directly or indirectly (through granting public guarantees) incur debt towards the rest of the world, the specific flows of foreign currency resources (withdrawals and debt service expenditures) affect upon the equilibrium of the balance of payments of that country, the subject is fairly treated in the literature. From this perspective, our study firstly aims to bring some theoretical clarifications on the notion of balance of payments equilibrium and on the channels through which public indebtedness (mainly from abroad) can affect the way this equilibrium is achieved. It further aims to emphasize, on the basis of data from the IMF and the World Bank, the impact of public indebtedness on the balance of payments equilibrium with particular reference to the case of Romania and other developing countries. The analysis highlights a variety of situations, expressing different effects (as sign and intensity) produced on public indebtedness' account.