Title Debt Trap and its Consequences.pdf ✅

Debt Trap and its Consequences Debt trap is a situation where the country is unable to repay the loans borrowed. To repay the loans, the country has to take next loans and that accumulates more, adding the liability of that country Increasing in expenditures on consumption sector without investing on the social capital heads drags a country into debt trap A debt trap is a situation in which a country will have to borrow more and more to pay even the interest obligation and repay the principal also Nepal is in $ 17 billion debt by Sept 2023 (41.57% of GDP), where external debt was $8.79 billion in September 2023 India was in $1.87 trillion debt in 2023 (57.1% of GDP) The highest debt to GDP ratio in 2023 was in Japan- 255% Among G20 countries, 11 countries had Debt-to-GDP ratio above 100% Countries without public debt- Switzerland, Sweden, Norway, Denmark, Czech Republic, Estonia,.... etc North Korea had external debt of around $14 billion in 2021 In Russia, it was around $326.6 billion in Dec 2023 (around 15% in 2023)
Some global examples of Debt Trap Causes of debt trap Consequences of Debt Trap Management of public debt e.g. Srilanka defaulted on $51 billion in external debt by October 2022 when it ran out of foreign reserves to even cover its imports In 1997, the outbreak of the Asian Financial Crisis plagued the superpowers of East Asia regions like Thailand, South Korea, Indonesia, Hong Kong, Malaysia, Laos, and the Philippines. It started with the collapse of the currency exchange rate of the Thailand Baht in July 1997. The foreign Debt-to-GDP ratio had soared to 180% in these ASEAN countries prior to the crisis, for which the IMF had to bail out external debts and send financial aid to support the countries like Thailand, South Korea, and Indonesia. In March 1991, India was left with just Rs 2,500 crores in its foreign reserves enough to cover the imports for just three weeks 1. Debt trap diplomacy- where a creditor country or institution extends debt to a borrowing nation partially, or solely, to increase the lender's political leverage. (e.g. China) 2. Raising interest rates 3. Misuse of deficit financing 4. Lower return on investment of government expenditure 5. Corruption and mismanagement 1. Additional borrowing is required for debt servicing which leads to inflation 2. Competitiveness in production sector decreases 3. Trade deficit and BOP deficit 4. Degrading economic stabilization 5. Decreasing foreign currency reserve 6. May increase poverty due to debt burden 7. Layoffs and expenditure cutoffs 8. Corruption, black economy and other socio-economic problems 1. By choosing right sector of expenditure 2. By reducing unnecessary public debt 3. By reducing expenditure in unproductive sector 4. By tracing the way to economic stability 5. Balance between fiscal and monetary policy 6. Reducing unequal distribution of income (Transfer income) 7. Reallocation of resources 8. Poverty alleviation 9. Societal awareness in consumption and saving
China’s Debt Trap Diplomacy: The first step of China's supposed debt-trap tactic is intentionally extending a burdensome loan to a country for a project that produces little to no economic return and then leveraging the resulting financial distress of the recipient to Beijing's advantage. By 2021, there were at least 57 countries with outstanding debt to Chinese state owned creditors Developing countries owe China at least $1.1 Trillion