It is alarming to note, that the economic debt of the developing countries will not be completely repaid, unless economic growth will be accelerated. The poor countries or low-income countries face serious challenges in meeting their developmental goals and are therefore vulnerable to poverty traps such as hunger, homelessness, illness, poverty and sufferings. Although, the solution to sustainable growth lies in the countries' own effort to strengthen its institutions and policies, these efforts need to be supported and completed financially by the international communities. Since, initial reasons for borrowing funds were to address ways to stimulate the plight of citizens, and achieve economic growth, in order to cushion the stability of the countries.
The less developed countries are dependent on the developed countries for food imports, official grants and concessional loans to finance investments. As a result, these countries do not have sufficient help to restore their economic growth, as financing markets makes it more likely that returns on new investments exceed their cost. The countries also do not have enough debt reduction to restore usual connections with creditors when they fall into debt crisis or traps. The harsh reality, however, is it causes a decline in the quality of life within the debtor countries; political violence within the developing countries; and decline effects on developed countries.
Poverty traps can be caused by excessive foreign debt burdens. As rich creditor governments who own and operate the main monetary organizations such as the IMF and World Bank have failed to recognize the enveloping risks of poverty on the low income countries. As a result, this crisis in saving, investment and production causes low-income countries to remain stuck at low or even falling levels of Gross National Product (GNP) per capita. Despite the forces of economic conventions that are also at play in the world economy, such as the potential for capital inflows into capital-scarce countries and the diffusion of technology from rich to poor countries; therefore, the need for significant outflows of capital to finance the debt will be encouraged.
The issue with borrowing is not that it is essentially bad to borrow; but the fact that the borrowed funds taken in the names of the tax payers and his children, ends up in the pockets of greedy government officials and their assistants also the fact that majority of the countries in the world, as well as developed countries are highly indebted countries. For example, "barely five years past when Nigerians were informed on to spend huge quantities on the state's overseas reserve to wean the nation from the believed hold of a crippling international debt trap, the central government announced the countries' new strategy to scrounge $1 billion from the World Bank to finance the N. 13 trillion deficit expected from the 2010 budget (AllAfrica Global Media, 2010). Although, a considerable fraction of the money is committed to investment in the terms of infrastructure within the country namely water supply, capacity building and power lines. As a result, the loan is coming at a time when the country feels free of the entrapments which is attached to indebtedness, as they are forced to return to the trap" (AllAfrica Global Media, 2010).
The debt trap also affects consumers; their wages decline, costs increases for example, medical and other costs, so consumers are forced to borrow to maintain the necessities of life such as food and shelter. Thus, the credit-worthiness of consumers gradually deteriorates under the conditions. Based on the economic conditions an interest rate is determined, however, if the interest rate is high, the interest on the debt keeps on rising as result making it impractical for consumer to repay the debts in full, since it is evident that interest rates exceeding 30% causes difficulties to get rid of.
Most of the local government funding comes from the treasury or the foreign donors. Most local authorities have not been in a position to generate revenue so as to repay the loans which has ended up putting strain on the central government which has to repay the funds anyway. This situation has led to cuts in the local authorities' funding rendering to poor service delivery. Local authorities have not been accorded full access to the revenue generated within their jurisdiction, making them uncommitted to full mobilization of the resources available to them. For example the methods of setting, revising and collecting of rates has for a long time been limited with no serious enforcement.
Despite the overwhelming number of statistics and indicators, global poverty is as hard to measure as it is to conceptualize.
