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Home Worksheets Debt Crisis

Debt Worksheet

A printable version of this worksheet is available for classroom or personal use with spaces to fill in the answers.

Introduction

One of the major barriers to the developing of the economy of Zambia is the burden of foreign debt that it faces. There are a number of causes of its foreign debt situation. Regular balance of payments deficits have meant that the country has borrowed foreign currency from a number of sources. Some of the debt is concessional meaning that the terms of the loans are less stringent that those imposed by commercial lenders. Much of the debt however is of a non concessional nature and must be repaid at market rates of interest.

Step 1

1. Explain what is meant by the balance of payments on current account. You may find the balance of payments theory section helpful for this.

2. Explain what is meant by a balance of payments deficit on current account. Again you may find the balance of payments theory section helpful for this.

3. Explain what is meant by a balance of payments surplus on current account.

4. Using the balance of payments on current account data in the resources section identify the balance of payments on current account position for 1988-1998.

5. Using the materials that you have come across give four reasons why the balance of payments on current account is in the position that it is. You may want to explore the issues raised in the trade field trip to help answer this.

Step 2

Read the sections on interpreting the balance of payments accounts and balance of payments policies.

1. Explain what is meant by the term Financing.

2. From the resources section select the balance of payments account and complete the following table for the years 1990 and 1997:

In 1990 US $97 million was borrowed from the International Monetary Fund to help finance the balance of payments deficit. This loan was given on the condition that Zambia followed certain structural adjustment programmes (SAPs).

3. Identify five of these SAPS that Zambia has introduced and consider the benefits and costs of each. You may find the issues section of the trade tour helpful for this.

Step 3

1. Work through the Central Bank of Zambia destination on the trade field trip and then explain what is meant by:

a) debt servicing

b) the external debt to export ratio

2. Using the data in the resources section calculate the % change in each of the following indicators of Zambia's debt burden between 1970 and 1997.

• Debt Service (all creditors)
• External debt as a % of GDP
• Total external debt to export ratio
• Total external debt per capita

3. How would you describe the changes in Zambia's debt situation over this period?

4. Identify three ways in which economic development would be affected by having to service this increasing amount of external debt.

Step 4

The Jubilee 2000 movement argued strongly that the creditor nations should cancel the debt of the debtor countries such as Zambia. Make sure that you have worked through all the issues in the Central Bank of Zambia destination of the trade tour to help you understand the problems of debt.

Prepare the arguments in support and against the motion:

"Cancelling the debt of the poorest LDCs is essential if their economies are to develop"