Significance of External Debts
1. Investment in Infrastructure and Development: External debts can provide a country with the necessary funds to invest in infrastructure projects, such as building roads, bridges, and power plants, which can drive economic growth.
2. Budget Gaps: Borrowing externally can help governments cover budget deficits, allowing them to continue providing essential; services like healthcare and education.
3. Economic Growth: When used wisely, borrowed funds can boost economic activity, create jobs, and enhance productivity, leading to overall economic development.
External Debt | Types, Effects, Merits and Demerits
External Debt can be defined as money borrowed from outside the country from sources like foreign governments, International Monetary Funds (IMF), Foreign Direct Investments (FDI), Foreign Portfolio Investments (FPI), etc. As people and businesses sometimes need to borrow money to pay their expenses, the same goes for the government of any country. The government sometimes may need to borrow money from either inside the country or outside the country. The borrowed money is known as Debt, and the modes of borrowing money can be classified into two categories – External Debt and Internal Debt.