External debt is a portion that a country borrows from foreign banks, governments; and international financial institutions. Today, most of the countries are indebted. In fact, one can easily say that almost all countries are facing the problem of external debt. This has become a global issue now. The figures of world debt are now exceeding $86,000. This borrowing of money can influence the upcoming generations as its servicing is utilizing the resources of the future generation.
What is the solution?
- Low-interest rates can allow the government to stimulate economic growth and generate tax revenue and eventually reduces the national debt. This enables borrowers to spend on more investment and the business cycle helps to increase employment and reduce poverty.
- One of the enabling tools that a government can use in order to avoid debt is bonds. The issuing of bonds by the government to get money enables the government to avoid tax increment and provides money for the purpose of public spending.
- A country can also decrease its external debt by increasing their exports. For this purpose, several other steps are necessary like making exports competitive in international markets, increasing efficiency with advanced technology, etc. Exports play an important role in this regard.