Why are some countries in debt? What impact does it have on development?

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Debt & Development

Why are some countries in debt? What impact does it have on development?

What is debt?

On an international scale, debt is the owing of money from one country to another or an international organisation as a result of previous borrowing because of need.

Why are some countries in debt?

Countries can be in debt for different reasons:

1) Trade deficit

When a country’s imports are worth more than a country’s exports, the country loses money and therefore it is forced to borrow money from other countries or international organisations to try and cover the losses.

2) Natural disasters and tied aid

After a natural disaster, a country may become dependent on the aid of another country for a short period of time. However sometimes the aid given is tied aid where the country receiving aid may have to pay back the money given (possibly with interest). They are therefore in debt to the donor country/organisation.

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3) Money mismanagement

If a country mismanages their use of money (most likely through the government) and spends money unnecessarily while taking out loans to cover the cost, the country can end up in debt.

The effect of debt on development

When a country is in debt, a majority of the money it generates is used to pay back money to the donor country. This means that there is little money being invested into the social infrastructure of the country, so healthcare and education levels remain the same or get worse overall slowing down or sometimes ...

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