THE ANALYSIS OF EXTERNAL INDEBTEDNESS OF THE G7 COUNTRIES: CHALLEGENCES AND PERSPECTIVES

Abstract

The problem of the external indebtedness of developed countries draws more attention and concern nowadays, since there has been a considerable increase in the level of the external debt of developed countries for the last decades. Moreover, the increment rate of external indebtedness outpaces the increment rate of economic growth and an increase in the external debt-GDP ratio of developed countries underpins the tendency. The debt dynamics of G7 countries draw special attention, since those countries represent the majority of net global wealth, generate half of the global GDP and are the ranking economies by Human Development Index. Within the context of the analysis of the external indebtedness of the G7 countries, it has been confirmed that weakening of productivity engenders an increase in debt pressure on the given countries. Although there is a unique set of factors influencing the dynamics of external debt in each of the countries, almost all of them share the same problem, which is presented impregnable market entry barriers. It is a well-established fact that new market players boost innovative activity. Lack of innovative boost aggravated by intra-country capital movement barriers significantly impairs productivity. In turn, low productivity signifies inadequate use of scarce resources, which is the disobedience of basic economic principles.  Despite the fact that almost all the G7 economies have managed to boost economic growth, an inadequate rate of productivity is hardly likely to alleviate debt pressure. It is recommended to address the productivity issues, since the tendency of external indebtedness accumulation to outpace economic growth increases the cost of necessary reforms and adjustments.