External debt crisis and its impact on development in developing countries

Abstract

The study aimed to investigate the external debt crisis and its impact on development in developing countries by examining the characteristics of external debt in developing countries, identifying the reasons for foreign borrowing, understanding the causes of failed management and accumulation of external debt, and finally analyzing the negative effects of accumulated external debt on development. The descriptive approach was employed as it suited the purposes of the study. The study yielded the following results: External debt in developing countries is considered a significant source of funding for development projects such as infrastructure and improving public services. However, it can increase financial pressures and expose economies to financial risks due to financing conditions and repayment schedules. The reasons for foreign borrowing include meeting the need to finance major development projects such as infrastructure and improving public services, and providing capital for various economic sectors to achieve economic growth and enhance competitiveness. The failure to manage external debt and its accumulation can be attributed to several factors, such as the inability to achieve sustainable economic growth that allows for rapid debt repayment, high interest rates which increase financial burdens, and global market fluctuations that may affect a country’s ability to attrac new investments or achieve a trade surplus that can be used for debt repayment. The accumulation of external debt and its negative effects on development can lead to increased external dependence, reduced opportunities for local investment in development, hindering economic growth, and increasing financial pressures on struggling countries, thereby affecting their ability to achieve sustainable development.