Foreign debt

Foreign debt is the money owed by one country to another country. This debt may also come about when an international bank issues a loan to a country. As such, this is also alternatively referred to as external debt. It is oftentimes necessary for countries to apply for loans from other countries or banks such as the World Bank, because funds are needed for the construction of important infrastructure and the implementation of other projects which are aimed at improving the economic conditions within a country. Historically, many countries have gotten into some form of foreign debt for the development of their territories, and even to fund war campaigns. In such cases, other nations which were supportive of the cause being espoused by one country were willing to lend their resources for its advancement.

Since it is very common for countries all over the world, even those which are considered quite developed, to borrow money at some point, financial entities catering specifically on an international level have been established. The operations of such financial institutions are governed by international regulations, as decided on by the members of the specific organization. This is therefore one way in which countries band together for common causes and offer assistance to other nations.

As is to be expected, developing countries are often heavily reliant on loans that may be availed from such institutions. To repay these loans, however, such nations must work hard to ensure that their gross domestic product is maintained at a level which will allow them to continue functioning properly while also being able to service the incurred debt.