Unit 4 → Subtopic 4.6
Why do Some Countries Struggle to Pay Loans?
Debt is a crucial part of modern economies, allowing governments to finance infrastructure, social programs, and economic growth. However, many developing nations find themselves trapped in unsustainable debt cycles, struggling to repay loans owed to international financial institutions, foreign governments, or private lenders. Countries that fail to manage their debt effectively may face economic crises, currency devaluation, and reduced public services, leading to political and social instability. This project challenges students to investigate why some countries struggle to repay loans and whether debt relief or restructuring is the best solution.
Students will begin by researching why countries borrow money, exploring the role of sovereign debt, development loans, and emergency financial assistance from institutions like the International Monetary Fund (IMF) and World Bank. They should examine how governments use borrowed funds for infrastructure projects, economic recovery, or social spending, but also how poor financial management or external economic shocks can make repayment difficult.
A key focus of this project is analyzing the causes of debt crises, such as high-interest loans, economic mismanagement, corruption, currency fluctuations, and reliance on commodity exports. Students should explore examples of nations that have experienced sovereign debt crises, such as Argentina, Greece, Sri Lanka, and Zambia, and assess how these countries reached the point of financial collapse.
Another major aspect is evaluating the impact of debt on national economies and global trade. When countries cannot pay their debts, they may face austerity measures, reduced foreign investment, and economic recessions, affecting not just their own citizens but also global financial markets. Some governments negotiate bailouts or debt restructuring plans, but these solutions often come with strict conditions that can limit economic growth.
The final investigation report should assess whether debt relief, stricter financial regulations, or alternative economic policies are the best way to prevent debt crises in the future. The goal of this project is to help students understand the risks of excessive debt, the role of international financial institutions, and possible solutions for struggling economies.
Recommended Procedure:
Research Why Countries Accumulate National Debt – Study how sovereign debt arises through government borrowing, including international loans, bonds, and financial assistance from organizations like the IMF and World Bank.
Analyze the Causes of Debt Crises – Investigate factors such as high-interest rates, economic mismanagement, corruption, political instability, and reliance on volatile industries. Assess how excessive debt can lead to default and economic collapse.
Examine Case Studies of Countries Facing Sovereign Debt Issues – Compare financial struggles in nations such as Argentina, Greece, Sri Lanka, and Zambia. Study how these countries reached debt crises and whether international interventions helped or worsened their situations.
Evaluate Debt Relief and Restructuring Strategies – Study initiatives such as IMF bailouts, debt forgiveness programs, and restructuring deals. Consider whether these efforts create long-term economic stability or if they increase dependency on lenders.
Write an Analysis on National Debt and Economic Survival – Discuss whether national debt is an inevitable part of economic development or if excessive borrowing is a sign of weak financial policies. Propose potential solutions for preventing future debt crises.
Suggested Sources:
Understanding Sovereign Debt and Economic Borrowing:
Investopedia: Why Countries Borrow Money – https://www.investopedia.com
Khan Academy: Sovereign Debt and Financial Stability – https://www.khanacademy.org
2. Case Studies on Debt Crises and Their Impact:
The Balance: Why Countries Default on Their Debt – https://www.thebalancemoney.com
Harvard Business Review: Lessons from the Greek and Argentine Debt Crises – https://hbr.org
3. Debt Relief and Restructuring Efforts:
World Bank: How Debt Restructuring Works – https://www.worldbank.org
OECD: The Effectiveness of Debt Relief Programs – https://www.oecd.org
4. The Future of Sovereign Debt and Global Lending:
IMF: How Developing Nations Manage Debt Burdens – https://www.imf.org
United Nations: Debt Sustainability and Economic Growth – https://www.un.org
Grading Rubric:
Total Points: __ /20
