Short-term debt
Also called: Short-term credit · Topic: Balance of Payments and Exchange Rates · NCERT: Class 12, Ch 6 "Open Economy Macroeconomics"
Meaning
Short-term debt is money a country borrows from abroad that must be repaid soon, within a short maturity. Most of it is trade credit, meaning credit that foreign suppliers give to importers so they can pay later. It is recorded in the capital account of the balance of payments (BoP). It matters because short-term debt must be rolled over or repaid quickly. If lenders suddenly refuse to lend again, the country can face a sudden run on its reserves.
Example
In NCERT's Table 6.1, short-term debt adds US$10 million to the capital account. A common test of safety compares short-term debt with forex reserves. Under the Greenspan-Guidotti rule, reserves should cover at least 100% of short-term debt.
Don't confuse with
- External commercial borrowings (ECB): these are commercial loans such as bank loans and bonds, raised under RBI rules. Short-term debt is mostly short-maturity trade credit.
Related concepts
- Capital account
- BPM6
- Capital flows
- Foreign Direct Investment
- Foreign portfolio investment
- Greenfield and brownfield investment
- Automatic route and government route
- Overseas direct investment
- Round-tripping
- External commercial borrowings