Reasons of increase in foreign debt charges
Why has debt servicing problem become so severe?
1. Too much huge loans
If Foreign loans stood 54 billion dollars and country has taken huge loans from foreign sources. Due to which the debt servicing problem has become sever.
2. Changes in the structure of foreign aid
With the passage of time, structure of foreign aid has changed. Sometimes they rise or decrease due to economical changes which rises the interest on foreign debt.
3. Increase in the import prices
Due to devaluation the prices of imports have increased. Due to growing population and industrial development imports have increased rapidly but exports are not increase with the same proportion. Thus country are facing BOP deficit.
4. Disturbance in import and export ratio
If Import and export ratio is also against a country due to which exports income is decreasing. So country have to depend upon foreign loans.
5. Increase in oil prices
Oil prices have increased a lot which badly effects UDC's.
6. Strict terms and conditions
If the lending countries tightened the lending terms and conditions then it will problem for borrowing country.
7. Defective planning
Such plans are made by policy markers of borrowing country which resulted in increase dependence on foreign aid.
8. Less saving
The savings are low. Tax paying ability is limited and if country is adopting deficit financing but this policy generates inflation. So foreign aid become inevitable.
9. Continuous devaluation
The continuous devaluation can raised the burden on foreign debt.
10. Budget deficit
Due to budget deficit the dependence on internal and external loans increased.
11. Compound rate of interest
Compound interest rate is charged on foreign loans. Consequently the interest on loans and actual money has increased.
1. Too much huge loans
If Foreign loans stood 54 billion dollars and country has taken huge loans from foreign sources. Due to which the debt servicing problem has become sever.
2. Changes in the structure of foreign aid
With the passage of time, structure of foreign aid has changed. Sometimes they rise or decrease due to economical changes which rises the interest on foreign debt.
3. Increase in the import prices
Due to devaluation the prices of imports have increased. Due to growing population and industrial development imports have increased rapidly but exports are not increase with the same proportion. Thus country are facing BOP deficit.
4. Disturbance in import and export ratio
If Import and export ratio is also against a country due to which exports income is decreasing. So country have to depend upon foreign loans.
5. Increase in oil prices
Oil prices have increased a lot which badly effects UDC's.
6. Strict terms and conditions
If the lending countries tightened the lending terms and conditions then it will problem for borrowing country.
7. Defective planning
Such plans are made by policy markers of borrowing country which resulted in increase dependence on foreign aid.
8. Less saving
The savings are low. Tax paying ability is limited and if country is adopting deficit financing but this policy generates inflation. So foreign aid become inevitable.
9. Continuous devaluation
The continuous devaluation can raised the burden on foreign debt.
10. Budget deficit
Due to budget deficit the dependence on internal and external loans increased.
11. Compound rate of interest
Compound interest rate is charged on foreign loans. Consequently the interest on loans and actual money has increased.
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