Cambridge International as and a level Economics Ebook

Classification according to levels of external 
indebtedness
Sometimes it is useful to classify developing economies 
according to the degree of their external indebtedness. 
Th
ese categories are: severely (or highly) indebted, 
moderately indebted and less indebted. Th
e categorisation 
depends upon a number of measures of external 
indebtedness, the most important of which is the 
proportion of GNI that is devoted to servicing the debt. 
Th
e fact that such a categorisation is used is a refl ection of 
the extent to which external indebtedness is an obstacle to 
economic development.
As well as the ratio of debt service to GNI, economists 
measure the ratio of debt service to exports. If either the 
proportion of debt service exceeds 80% of GNI or the 
value of debt service to exports is 220% of exports, then 
the country is considered to be severely indebted. If either 
of the two rates exceeds 60% of the critical level, then the 
country is said to be moderately indebted. Th
e presence of 
debt on such a scale diverts resources to debt repayment 
and away from spending on health and education, 
infrastructure and poverty relief.
Classification according to economic 
structure
Economic activity can be placed into the following sectors:
■ 
Primary sector:
This covers agriculture and the extractive 
industries such as oil extraction, gold mining and coal 
mining.
■ 
Secondary sector:
This includes all manufacturing 
industries and the construction industry.
■ 
Tertiary sector:
This covers all service industries. Some 
economists separate out from the tertiary sector the
 
quaternary sector
,
 
to cover knowledge-based services 
such as education, financial planning, ICT, the media and 
research and development.