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External Debt:

Economics notes

External Debt:

➡️ External debt is the total amount of money owed by a country to foreign creditors, including governments, banks, and other financial institutions.

➡️ External debt can be used to finance investments, fund development projects, and provide liquidity to the economy.

➡️ Managing external debt can be a challenge, as it can lead to higher interest rates, currency devaluation, and a decrease in economic growth.

What is external debt and how does it affect a country's economy?

External debt refers to the amount of money a country owes to foreign lenders. It can affect a country's economy in several ways, such as increasing the country's vulnerability to economic shocks, reducing its ability to invest in domestic projects, and leading to higher interest rates and inflation.

What are the main causes of external debt and how can countries manage it effectively?

The main causes of external debt include borrowing to finance infrastructure projects, trade deficits, and currency devaluation. To manage external debt effectively, countries can implement policies such as reducing trade deficits, promoting exports, attracting foreign investment, and implementing sound fiscal policies.

How does external debt impact a country's credit rating and ability to borrow in the future?

High levels of external debt can negatively impact a country's credit rating, making it more difficult and expensive to borrow in the future. This can lead to a vicious cycle of borrowing to pay off existing debt, which can further increase the country's debt burden. To avoid this, countries should aim to maintain a sustainable level of external debt and implement policies to improve their creditworthiness.

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