Debt Crises in the Least Developed Countries (LDC) and the Impact of Essay

Debt Crises in the Least Developed Countries (LDC) and the Impact of the Debt Reforms in LDC - Essay Example This paper dedicated to the problem of the unsustainable external debt and its repayment in in the least developed countries (LDU), which is considered an impediment to their economic growth and development. The report by the UN found out that there is a high probability that any LDC that exports primary commodities has an unsustainable external debt and that there is a close association between falling and volatile commodity prices and unsustainable external debt. The debt problem of commodity-exporting LDCs is rooted in the low level of domestic resource mobilization, low rates of return on investment, the vulnerability to external shocks and slow export growth. For debt sustainability to be achieved, the rate of growth of exports must be greater than the rate of interest on outstanding debt. Although high levels of debt can depress economic growth in low-income countries, external debt slows growth only after its face value reaches a threshold level estimated to be about 50 percent of GDP. A major challenge LDCs face is ensuring that a reasonable resource level is allocated for debt servicing to avoid the risk of default and to maintain conducive relations for debt relief negotiations with its debtors Governments must make efforts to stabilize commodity prices, perk up their levels of domestic resource mobilization, increase rates of return on investments and raise export growth, and finally protect themselves from external shocks. Debt reform not only includes maintaining a manageable level of debt but also decreasing corruption incidence in LDCs, allocating a reasonable resource level for debt servicing to avoid the risk of default, without sacrificing than they can afford to invest in basic health care or education.