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HCS (Haryana)Prelims2021General Studies
Question
A country is said to be in debt trap if:
Options
- A It has to abide by the conditionality imposed by the International Monetary Fund.
- B It is required to borrow money to make interest payments on outstanding loans.
- C It has been refused loans or aid by creditors.
- D The World Bank charges a very high rate of interest on outstanding as well as new loans.
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Correct Answer
B It is required to borrow money to make interest payments on outstanding loans.
Model Answer
- A debt trap is a situation where countries or businesses or individuals are forced to take fresh loans to repay their existing loans.
- Such a situation arises when the income of a country or individual or company is not enough to clear its debt, while the interest on the outstanding loan amount starts to pile up quickly. This forces them to avail fresh loans to clear off the piled up interest, thereby falling into a debt trap.
- Hence, option B is correct.