Should we worry about rising levels of external debt?

Most analysis of EM vulnerabilities to Fed tapering and the likelihood of tougher external financing conditions over the coming years has focussed on the size of a country’s current account deficit. But the risks posed from mounting levels of external debt have generally been overlooked. In most cases, the growing burden of external debt is backed by a large buffer of foreign exchange reserves. But this is not always the case. External debt dynamics are particularly worrying in Turkey and South Africa.