What is debt?
Most of us have to borrow a large amount of money at some time in our lives. Buying a house usually involves taking on debt in the form of a mortgage. For many people, their first debt is their student loan. The sum borrowed is called the principal. On top of the principal you have to pay interest – the fee charged by the lender to the borrower for the use of the lender’s money.
How do countries get into debt?
All countries have to borrow money from time to time. Just as house buyers borrow money which they pay back over many years, poorer countries use loans to finance basic infrastructure like dams and road systems.
Developing countries and debt
In the 1970s, rich oil-producing countries put their massive profits into banks to earn interest. To pay this interest, the banks made loans to developing countries. Interest rates were low, and these loans were thought to be affordable. It hardly mattered what the loa