Definition: Debt forgiveness (other sectors)

Category: Balance of Payments, IMF

When a government creditor entity in one economy formally agrees - via a contractual arrangement - with a debtor entity in another to forgive (extinguish) all, or part, of the obligation of the debtor entity to the creditor, the amount forgiven is treated as a capital transfer from the creditor to the debtor. That is, the balance of payments reflects a reduction of the liability offset by the transfer. Similar treatment is applicable when a government entity's debt is forgiven by agreement with a creditor entity in another economy. http://ec.europa.eu/eurostat/ramon/statmanuals/files/BoP_Manual_Fifth_Edition_EN.pdf