One of the main reasons why countries repay their foreign debts is to secure their desire for future access to financial assistance. Several nations fear being excluded from the lists of those countries that are eligible for foreign borrowing. The other reason is that hinged on the countries strive to defend their reputation internationally. In light of this point, a countries ability to repay its debt is an indicator of stable economic growth and debt sustainability (McKenna 43).
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As such, a solvent nation will attract a high number of foreign investment hence boosting economic performances. A country will repay its debts as an indication of good economic performance, this is evident in a considerable number of countries that strive to achieve economic excellence (Tarp and Hjertholm 123).
On the other hand, countries especially developing nations may fail to repay their debts due to risk materialization about a government-conducted investment. This can be coined as a bad lack. The countries lack concrete checks and balances coupled with self-interest elites. As such, much of the funds are misappropriated, and corrupt elites engage in capital flights. Additionally, countries fail in debt repayment due to externalities, reform delay, moral hazard, as well as incentive distortions. All these factors cause debt problems among poor nations (Curtin, 102).
Furthermore, most of the debt default is a result of benevolent politicians who set up investments without considering its long-term repayment ability. As such, they focus mainly on social investments that are pro-poor, hence the return on such investments is limited. It is also evident that the external borrowing that is made by developing nations is beyond their governments’ political ability to settle it in totality, and as a result, the countries find themselves heavily indebted, thus they cannot repay their debt.
Curtin, D. Philip. (1984). Cross-Cultural Trade in World History. UK: Cambridge University Press.
McKenna, Reginald. (2010). Reparations and International Debts, an Address. USA: BiblioLife.
Tarp, Finn and Hjertholm, Peter. (2003). Foreign Aid and Development: Lessons Learnt and Directions For The Future. London: Routledge.