During the late 2010s, several emerging economies in East Africa embarked on ambitious, credit-fueled development plans. Large sovereign loans, frequently denominated in foreign currencies, were secured to construct major hydroelectric power stations and modern standard-gauge railway networks. However, global monetary tightening and domestic currency depreciations have significantly increased the domestic cost of servicing these liabilities.
By 2023, public debt in several of these nations had risen to over 78% of GDP. More pressingly, debt-service obligations now absorb approximately 42% of total government tax revenues. Economists warn that this creates a severe fiscal squeeze. This severe drain on public finances carries a heavy opportunity cost, limiting the state's capacity to invest in critical social sectors and basic utilities, thereby threatening future economic development.
With reference to Extract C, explain why 'opportunity cost' is a problem for governments of developing countries when servicing debt.
