Problem of Debt in Developing Countries and Debt Relief as a Probable Solution

The Growing Problem of Debt in Developing Economies:
The Analysis of Debt Relief as a Probable Solution
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Abstract
In this paper, we look into the definition of a developing country and the standard, macro-economic characteristics prevalent in these countries that differentiate them from developed countries. Some of these characteristics include, but are not limited to, low per capita income, high population growth rate, high unemployment rate and the excessive dependence on agriculture as the primary source of livelihood. Understanding that external debt is one of the significant prevailing factors that ail the economies of such countries and slow their economic growth, we look into examples of developing countries that have struggled with debt servicing and loan repayment. We then analyze the methods and controls that have been put in place by the International Monetary Fund in partnership with the World Bank to ease the debt burden and evaluate the actual effectiveness of these methods in solving the debt crisis.
Keywords: developing country, loan repayment, low per capita income, debt crisis.
The Problem of Debt in Developing Economies
One major factor prevalent in almost all of the developing countries is the high reliance on debt and foreign aid to alleviate some of the financial pressure and sustain their economies. Ideally, debt is a good way for governments of developing countries to obtain extra funds for their projects and enable foreign and much more developed governments to invest in a company's growth by buying treasury bonds. However, debt at high levels can be detrimental to the developing economies and is an impediment to economic growth in many of the world's least developed countries.
Definitions
The term developing countries, often used interchangeably with Third World or less developed countries, is applied loosely to countries with lower economic progress and depend almost wholly on agriculture for its subsistence. On the other hand, the term 'developed country' refers to countries that, compared to others, have more matured and sophisticated economic backgrounds and a well-developed industrialization base.
Toussaint and Millet (2010) opine that the term 'developing' is somewhat vague. It suggests that the less developed countries strive to achieve some form of ideal economic level. The term implicitly infers that the more developed countries are some benchmark for economic perfection, far from accurate (Toussaint & Millet, 2010). However, these words are mainly a means for classification. They are in no way intended as a depreciative label on the less developed economies according to the United Nations World Economic Situation & Prospects (UN, 2014).
According to the UN (2014), the classification of developing and developed countries based on their economic development level shows that most developed nations lie in Europe and a few selected countries, such as Australia, Japan, New Zealand, and the United States of America. Most developing nations lie majorly in parts of Africa, Asia, Latin America and the Caribbean (UN, 2014).
Developing nations are bound together by several common, homogenous macroeconomic characteristics that help to differentiate them from the developed countries, as listed below.
Low per capita income
Comparing countries based on their national income levels is one of the significant ways to assess a country's economic development. Per capita income refers to the average amount of income that a citizen of that country receives over a certain period. It is a very straightforward and direct method to measure the relative development levels of a nation.
The value of the income per capita, or per head, is calculated by dividing the country's Gross Domestic Product (GDP), which is the total value of every product produced within its boundaries, by its total number of citizens. Essentially, the figure obtained is an approximate representation of how much the average citizen typically earns in the country. The per capita income for developed countries is substantially higher than for the less developed countries. From the United Nations Statistical Yearbook (UN, 2020), the Gross Domestic Product per capita stood at $1 856 in Africa, which in our case represents the developing economies. The Gross Domestic Product per capita in Europe stood at $29 279 (UN, 2020). The average citizen in a developed country earns approximately 1477% more than the average citizen in a developing country. This difference is overwhelming but can be aptly attributed to the deficient levels of industrialization in the developing countries, coupled with the high levels of the population, which reduces employment opportunities for the citizens.
High population growth rate
A quick scan into the actual population figures in developing countries reveals that the number is higher than in the developed countries. In 2020, the total population in Africa was 1396.20 million, while in Europe, it was reported at 386.58 million (UN, 2020). The high illiteracy levels may explain this spike in figures in the less developed economies in the countries and a misguided belief that more children increase the labour force and are an investment contingency for the parents. Additionally, the high population can also be attributed to inadequate education on family planning and lack of sex education in general in these areas.
High rate of unemployment
The high population rate in the developing countries undoubtedly creates a strain on the fragile economy of these countries and thus leads to higher unemployment cases. Traditionally, these cases were primarily more concentrated in the rural parts of the nations. However, as the less developed c...