The combined effect of this debt reduction and greater prudence in fresh borrowing coupled with GDP growth, helped reduce the external debt and liabilities/GDP ratio to 32.5% by end-FY05 relative to 51.6% in FY00, and external debt and liabilities as a %age of foreign exchange earnings declined to 134% relative to almost 300% in FY00.
Aside from the decline in external debt, the external debt burden also fell as a consequence of the real cost of borrowing. With the pace of foreign exchange earnings gaining momentum, the country’s debt carrying capacity grew. At the centre of all these developments was the pursuance of prudent monetary, fiscal and exchange rate policies.