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Foreign Debt - Economics, UPSC IAS Exam Preparation Video Lecture | Indian Economy (Prelims) by Shahid Ali

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FAQs on Foreign Debt - Economics, UPSC IAS Exam Preparation Video Lecture - Indian Economy (Prelims) by Shahid Ali

1. What is foreign debt?
Ans. Foreign debt refers to the amount of money that a country owes to foreign lenders or governments. It is the accumulation of financial obligations that a country has borrowed from other countries or international financial institutions.
2. Why do countries accumulate foreign debt?
Ans. Countries accumulate foreign debt for various reasons. Some common reasons include financing infrastructure projects, stimulating economic growth, covering budget deficits, and addressing balance of payment issues. Foreign debt allows countries to access capital that may not be available domestically.
3. What are the risks associated with foreign debt?
Ans. There are several risks associated with foreign debt. One major risk is the potential inability to repay the debt, leading to a debt crisis. Additionally, countries with high levels of foreign debt may face higher interest rates, reduced credit ratings, and limited access to international financial markets. Fluctuations in exchange rates can also increase the burden of foreign debt.
4. How does foreign debt impact the economy?
Ans. The impact of foreign debt on an economy can be both positive and negative. On one hand, foreign debt can provide the necessary funds for development projects and economic growth. It can also stimulate investment and create employment opportunities. On the other hand, high levels of foreign debt can lead to economic instability, currency depreciation, and debt servicing difficulties.
5. How can countries manage their foreign debt?
Ans. Countries can manage their foreign debt through prudent fiscal and monetary policies. This can include maintaining a balanced budget, promoting export-oriented industries, diversifying sources of financing, and implementing structural reforms to improve the economy's competitiveness. Negotiating favorable loan terms and actively managing debt repayment schedules are also important strategies for managing foreign debt.
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