Developing economies debt crisis

Covering development economies debt issues with my CIE A Level class and the video below from the FT looks at the impact of higher interest rates.

External debt can be a major obstacle to future economic development. Repaying the debt can divert funds away from improving the welfare of the population and increasing the economy’s growth potential. A high level of external debt can make it difficult and expensive for a developing economy to attract more funds for development. Some governments reduce their ability to borrow more in the future by defaulting on past loans. These governments may consider that, for instance, avoiding cutting spending on education and health care may be more important than meeting their obligations to repay loans.

2022 – debt crisis. As rich countries switch on their firefighting mode to tame soaring inflation, highly indebted developing countries are feeling the heat. Sri Lanka has already defaulted on its debt, many others are on the brink. Global interest rate rises have led to spiralling, decades-high external debt payments for 91 low or lower-middle income countries. In a few cases the IMF and creditors like China have stepped in with additional aid or restructure deals, but economists say institutions and wealthier nations need to do more to ease the burden of debt. See FT video below.

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