Why is foreign debt a serious problem for poor countries?
Matthew Harrington
Updated on January 20, 2026
Excessive amounts of foreign debt will hinder countries’ capacity to invest in their financial prospects, whether through education, infrastructure, or health care, because their small income is spent on repayment of loans. It is a challenge to economic development in the long term.
Why do poor countries borrow money?
Increases in oil prices forced many poorer nations’ governments to borrow heavily to purchase politically essential supplies. At the same time, OPEC funds deposited and “recycled” through western banks provided a ready source of funds for loans.
Why do many developing countries experience debt crisis?
The external debt crisis that emerged in many developing countries in 1982 can be traced to higher oil prices in 1973-74 and 1979-80, high interest rates in 1980-82, declining export prices and volume associated with global recession in 1981-82, problems of domestic economic management, and an adverse psychological …
Which country has the highest foreign debt?
United States
List
| Rank | Country/Region | External debt US dollars |
|---|---|---|
| 1 | United States | 2.25411×1013 |
| 2 | United Kingdom | 9.019×1012 |
| 3 | France | 7.3239×1012 |
| 4 | Germany | 5.7358032×1012 |
What country is owed the most money?
List
| Rank | Country/Region | Per capita US dollars |
|---|---|---|
| 1 | United States | 68,007 |
| 2 | United Kingdom | 127,000 |
| 3 | France | 87,200 |
| 4 | Germany | 69,000 |
How much money is in third world debt?
Between 1973 and 1993, developing countries’ debt compounded at a rate of around 20 per cent per annum, rising from US$300 billion to US$1.5 trillion, of which experts have claimed only US$400 billion was actual borrowed money.
Why are interest rates so high in third world countries?
The oil price shock also caused inflation and therefore higher interest rates. This meant that third world countries were faced with both higher debt, but also a higher % of debt interest payments.
How did the World Bank help the Third World?
During that period the World Bank and the International Monetary Fund (IMF) became key players by offering conditional loans and advice to try to help manage the debt of developing countries. Nevertheless, debt remained a major issue for many of those countries.
How does China’s debt trap work with Third World countries?
A few of these bilateral packages appear contrived to imprison already impoverished states into realms of permanent economic vassalage to China. The BRI networks clearly intend to benefit China, either by stimulating an enormous increase in commerce, or, when debts cannot be repaid, by appropriating whatever assets China selects.
