Import ratio

Import ratio, in economics and government finance, is the ratio of total imports of a country to that country’s total foreign exchange (FX) reserves.[1] The ratio can be inverted and is referred to as the reserves to imports ratio. This ratio divides a country's average foreign exchange reserve by a country's average monthly level of imports.[2]

Relation to sovereign risk

Credit restructuring is made more likely by a higher amount of imports relative to FX reserves. A less developed country will pay for imports with its foreign exchange reserves. The more it imports the faster these reserves are used up. Since satisfying a country's needs is considered more important than repaying foreign creditors the more a country imports relative to its foreign exchange reserves the greater the probability of debt rescheduling.

References

  1. ↑ Cornett, Marcia Millon; Saunders, Anthony (2006). Financial Institutions Management: A Risk Management Approach, 5th Edition. McGraw Hill. ISBN 978-0-07-304667-9.
  2. ↑ http://www.adelaide.edu.au/cies/papers/0302.pdf Exchange Rate Policy and Foreign Exchange Reserves Management in Indonesia in the Context of East Asian Monetary Regionalism
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