IMPACT OF FOREIGN DEBT ON DEVELOPING ECONOMIES

In this age of rapid growth and development in every field of life, it is very difficult rather impossible for a country to finance all of its development expenditures with its own resources. Therefore, to cover up the gap between its expenditures and revenues, it has to borrow somehow from internal and external resources. In last few years most major types of debt have grown rapidly. The major reason for this rapid growth of indebtedness was the high deficits in the government budgets. The problem of high debt growth in Less Developed Countries is not a small one. The LDC’s are going deeper and deeper in debt. Even the debt servicing obligations are met with more and more debt. This condition is being called “Debt Trap Peonage”. LCD’s do not earn enough from the exports of their mineral and agricultural products to pay for the expensive finished goods they import. These less developed countries are obliged to supply their low priced raw materials to their rich creditors and unable to utilize their resources for developing their own economies. It is no gain saying the fact that some of the LDC’s are even having problems with their debt service obligations, they even default, which worsen the situation. Several reasons are given for high growth of LDC’s debt e.g. deficit in the budgets, capital flight, foreign exchange problems and high interest rate. Heavily indebted poor countries have higher rates of infant mortality, disease, illiteracy and malnutrition than other countries in the developing world, according to the UN Development Program. What should be done when debt servicing appears to affect growth adversely and increases crowding out effect on private investment??? 

By Colletor Adoyo