Low foreign debt on the price and exchange rate – a snail

Portugal’s net external debt fell to 84.4% of GDP in June this year, the Bank of Portugal revealed on Wednesday, August 18. At the end of 2020, the country’s external debt was 87.1%. However, the improvement was achieved as a result of price and exchange fluctuations, as the effect of transactions made in this period was negative.

In June, Portugal accumulated net external debt of €176.3 billion. This value corresponds to the country’s international investment position (PII). Excluding equity instruments, gold bullion and financial derivatives. The objective is to assess the balance between the entire debt stock and the accumulated group of assets.

However, this improvement was mainly caused by the change in the price of assets owned by non-residents and the exchange rate. “In the price changes, in the liabilities component, the devaluation of Portuguese public debt securities held by non-residents, and in the assets component, the rise in the value of titles held by resident entities that have a collective relationship,” explains the Center Bank.

On the other hand, the differences in exchange rates “was mainly justified by the appreciation of the US dollar, the Mozambican metical and the British pound, with the effect of increasing the value of foreign assets in euros expressed in these currencies held by residents,” he adds.

Banco de Portugal notes that the effect of transactions, i.e. the exchange of assets and liabilities between residents and non-residents, has been “negative”. When analyzing the balance of trade, it can be seen that there is a decrease in the deficit in the balance of goods, but its positive effect has been lost due to the sharp decrease in the surplus in the balance of services.

Looking at the IIP as a whole, Banco de Portugal indicates that there was also a slight improvement, but symbolic, here: the negative status of the IIP has fallen from the level of 100% of GDP, having fallen from the 105.1% it recorded. At the end of 2020, to 99.5% in June of this year, compared to 207.9 billion euros.