During the early 2010s, several developing nations in South Asia experienced rapid economic growth financed largely by foreign-currency denominated loans. These funds were directed towards large-scale infrastructure projects, such as deep-water ports and transit corridors. However, a combination of global inflation, rising interest rates, and external economic shocks has driven debt accumulation to unsustainable levels.
By 2022, debt-to-GDP ratios in some of these nations exceeded 85%. While this figure is concern enough, economists argue that the more critical indicator is the debt-service-to-revenue ratio. For instance, in some highly indebted nations, debt-servicing requirements now consume over 30% of total government revenues. Analysts warn that this leaves public budgets highly constrained, representing a massive opportunity cost that threatens long-term capital accumulation and human development goals.
With reference to Extract B, explain why 'opportunity cost' is a problem for governments of developing countries when servicing debt.
24 exam-style questions on Edexcel A A Level Economics 4.3.3 Strategies influencing growth and development. Each one has a worked solution and a mark scheme showing where the marks go.