Test C – Question 11

### External debt and current account deficit – **Gross external debt**: Total government debts in foreign currency to entities abroad. External debt at the end of a year is the debt at the beginning of the year plus loans taken out during the year, less loans repaid. – **Net external debt**: Gross external debt minus the economy’s foreign currency balances. ### Current account – **Current account**: A section in the balance of payments that summarizes all financial movements into and out of the country, including commercial activity (exports, imports) and current transfers (grants, donations). – **Current account deficit**: A situation in which more money leaves the country than enters it, for example, when the country imports more than it exports. ### The relationship between external debt and current account deficit – When there is a current account deficit, the economy must cover this deficit by borrowing from abroad, which leads to an increase in external debt.
– It is possible that the current account deficit has decreased compared to the previous year, but there is still a deficit that requires borrowing from abroad, and therefore the external debt has increased.
– If the economy repays loans and does not take on new ones (for example, when there is a current account surplus), the external debt will decrease.