Optimal and Non-Optimal Debt

External debt economics involves decisions which would lead to the best (optimal) objective. This means a need to formulate these factors which optimise (i.e. maximise or minimise) the value of the objective function. From debtor country’s point of view the ultimate objective is to measure its returns on investment financed by external borrowing. This requires that debtor achieve one of two objectives: 1. Whatever the country’s output rate, return on investment (ROI) will have to be achieved at the minimum total cost (interest and principal), or; 2. Any given total external borrowing that finances productive inputs will have to achieve the maximum level of output. From creditor country’s point of view, the ultimate objective is to maximise its returns on external lending. This requires that creditor achieve one of two objectives: 1. Any given external lending will have to produce the maximum rate of return (interest rate) or; 2. With a minimum rate of return (interest rate), creditor must minimise the amount of credits extended to foreign debtors.