Nepal | October 19, 2019

External debt


Cara Tinio

With their far-flung territories and distance from global economic hubs, the Pacific islands face significant hurdles in delivering social and infrastructure services to their people.

Adding to this challenge are these countries’ narrow economic bases, which limit their ability to collect domestic revenues; their reliance on mostly imported inputs; and their vulnerability to disasters and extreme climate change, the impacts of which can drive up public spending.

Pacific governments can borrow to augment their resources and stabilize public spending and services; but this debt is generally from external sources and comes at a relatively higher cost than it would be for more developed countries, which are considered less of a credit risk due to their more diversified economies.

Borrowing is a viable enough option during economic “boom” years, when the government is earning enough to service its debt, but the burden can be excessive when “bust” years hit … —

A version of this article appears in print on May 06, 2019 of The Himalayan Times.

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