This is a situation where a country borrows money from foreign investors or institutions to fund infrastructure projects, but the debt becomes unsustainable due to high interest rates or inability of the project to generate enough revenue.
Think of it like using your credit card to buy an expensive piece of equipment for a new business venture. If the business doesn't take off as expected and you can't make enough money to pay off your credit card bill, you'll find yourself in a "debt trap."
Sovereign Debt: This is the amount of money that a country's government has borrowed. It can be owed to foreign investors, which is often the case with developing countries.
Infrastructure Development: This refers to building physical structures like roads, bridges, power plants etc., often funded by loans in developing countries.
Debt Sustainability: This term refers to a country's ability to manage its debt so it doesn't become too large relative to its economy.
Study guides for the entire semester
200k practice questions
Glossary of 50k key terms - memorize important vocab
© 2024 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.