What are the economic costs of borrowing foreign debt?

The economic costs of borrowing foreign debt can be summarized into four categories. The first is the repayment of the principal and interest of the debt, the second is the additional conditions of the foreign debt, the third is the uncertainty of the supply of foreign capital, and the fourth is the dependence on foreign debt. The following is the four categories. A detailed introduction to the economic costs of foreign debt, I hope it will be helpful for you to understand foreign debt.

The economic cost of borrowing foreign debt

(1) Repayment of debt principal and interest

In order to repay principal and interest, the debtor country must give up a certain amount of consumer spending and investment spending; international commercial loans borrowed at market interest rates will have higher borrowing costs; if there is a debt repayment peak , which can easily lead to repayment difficulties for debtor countries and even a debt crisis. This will seriously damage the international credibility of debtor countries and reduce their international financing capabilities.

(2) Foreign debt with attached conditions

Often government loans and loans from international financial institutions have certain Additional conditions, additional conditions can be regarded as additional costs of borrowing, such as government loans that generally require the debtor country to import urgently. Another example is that when international financial institutions provide loans, they intervene in the economic activities of the debtor country on the condition that the debtor country implements "reform" of its economic system.

(3) Uncertainty in the supply of foreign capital

Many complex factors of international economic and financial turmoil Capital inflows that will affect debtor countries, such as severe economic recession, inflation and budget deficits in creditor countries, may cause their governments and commercial banks to reduce or cut loans to debtor countries, or even stop providing new loans. Uncertainty in the supply of foreign capital is often an important reason for debtor countries' repayment difficulties.

(4) Dependence on foreign debt

If foreign debt is used improperly, it will not bring enough funds to repay the debt. In order to pay principal and interest in foreign exchange, the debtor country has to continue to borrow new debt to repay old debt, making the debtor country dependent on foreign debt. The greater a debtor country's dependence on debt, the weaker its resistance to the impact of changes in the international financial market and the international economic environment.