What is the cause of debt crisis in a country?

 BY: Pankaj Bansal, Founder at NewsPatrolling.com

A debt crisis in a country occurs when the government is unable to meet its debt obligations, leading to financial instability. Several factors contribute to a debt crisis:

1. Excessive Borrowing:

• Governments may borrow heavily to finance large projects, welfare programs, or to cover budget deficits. Over time, this can lead to unsustainable debt levels.

2. Economic Recession:

• An economic downturn reduces tax revenues while increasing the need for public spending, making it difficult for a government to service its debts.

3. High Interest Rates:

• Rising interest rates increase the cost of borrowing, making it harder for a country to pay back existing debt.

4. Currency Depreciation:

• A decline in the value of a country's currency can make debt denominated in foreign currencies more expensive to repay.

5. Structural Weaknesses:

• Weak financial institutions, poor fiscal management, and lack of transparency can lead to inefficient debt management and increased vulnerability.

6. Political Instability:

• Political unrest or unstable governments can deter investment and reduce economic growth, worsening a country’s ability to manage debt.

7. External Shocks:

• Events such as global financial crises, natural disasters, or commodity price shocks can reduce a country’s income and increase borrowing needs.

8. Poor Fiscal Discipline:

• Chronic fiscal deficits and failure to implement necessary economic reforms can result in debt accumulation over time.

9. Debt Servicing Burden:

• A high proportion of government revenues dedicated to interest payments can crowd out spending on essential services and investments.

10. Lack of Access to Credit Markets:

When investors lose confidence, countries may face difficulty refinancing their debt or raising new funds.