Question

What is meant by External Debt Trap?

• A. Taking new Foreign Loans to repay the interest of previous loan
• B. Being unable to repay the interest and the principle amount of the external loan
• C. Taking new loans to reduce the impact of the business style
• D. Repayment affected by the Balance of Payments

Answer 1

The correct option is A Taking new Foreign Loans to repay the interest of previous loan

External debt is the portion of a country's debt that was borrowed from foreign lenders, including commercial banks, governments, or international financial institutions. These loans, including interest, must usually be paid in the currency in which the loan was made.
A debt trap is a situation in which a borrower is led into a cycle of re-borrowing, or rolling over, their loan payments because they are unable to afford the scheduled payments on the principal of a loan. These traps are usually caused by high-interest rates and short terms.