In the third quarter of the year, external debt reached 102% of GDP, which represents an improvement on the quarter-end figures for the year. Portugal owes more than the wealth it produces.
The external debt, measured by the International Investment Position (IIP), retreated to 102% of GDP in the third quarter of the year, revealing a trajectory of correction throughout 2019, according to data published this Wednesday by Bank of Portugal.
“At the end of September 2019, the IIP of Portugal stood at -212.6 billion euros, representing an improvement of 2.6 billion euros compared to the end of 2018,” says the central bank.
In the second quarter of the year, the external debt reached 104.4% of GDP, compared to 104.6% of GDP in the first quarter of the year. At the end of 2018, the external debt stood at 105.6%.
The fact that the external debt is higher than 100% of GDP means that the total wealth produced by the economy is still not enough to pay off the total debt accumulated by all the agents.
The external debt of the economy is calculated through the IIP and measures the indebtedness of all economic agents: companies, households and the State. Thus, the external debt results from the difference between what the country owes to the foreigner and what it owes to the foreigner and is a sum of the deficits accumulated.
The central bank explains that “transactions (+1.2 billion euros), exchange rate changes (+1 billion euros) and other adjustments (+0.5 billion euros), which were partially offset by price changes (-0.1 billion euros), contributed to the IIP variation”.
“With exchange rate changes, the positive impact on the IIP is mainly justified by the valuation of foreign residents’ assets denominated in US dollars, resulting from the appreciation of this currency against the euro. In terms of price changes, although the net value is reduced, in gross terms, reference should be made to the valuation of treasury bonds in the portfolio of non-residents, increasing the liabilities of the international investment position. In the opposite direction, it should be noted the valuation of assets by the increase in the price of gold.”