Cause Of Debt In Developing Countries

740 Words3 Pages
Causes of debt. Debt in our country has increased over the years, many factors have caused this increase in debts are as follows:- a. Terms of Trade As a result of unfavorable terms of trade (53.97 index point) country faced with the problem of balance of payment, Pakistan mainly export agricultural goods and in turn import machinery and electric goods, the value of imports in most cases exceeds the value of exports and as a result the increasing debt problem. b. Rising International Interest Rates Most international finance institutions will raise their interest rates which in most cases affect developing countries, for example a country may obtain funds from a financial institution but the country may face increasing interest rates on the loan which will increase the pay back value where in most cases the country may end up paying more than double it acquired from the institution, therefore this has added to the problem of debts in developing countries. c. Increased Protectionism in the International Market Increasing protectionism in the international markets has led to an increase in the debt problem in the country, most of the products produced in developing countries are exported to developed countries, when the products are faced with high levels of protectionism in the developed countries the developing countries will experience a reduction in exports leading to unfavorable balance of payment (6.4% of GDP trade deficit), this means that the country will experience
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