“Unsustainable debt has contributed to the social problems facing the Highly Indebted Poor Countries (HIPCs) and non-HIPC countries alike. Not only has it slowed economic growth, it has also restricted the “fiscal space” available for investment in basic services with excessive debt servicing undermining access to social services. The effects of unsustainable debt continue to include, among others, the diversion of foreign exchange and import capacity, the drain on domestic savings and, in due course, limit the government’s capacity to finance investment in social and economic infrastructure. Furthermore, it increases uncertainty over exchange rate stability, with adverse consequences for domestic and foreign investment. Consequently, international aid continues to be diverted from poverty reduction priorities to debt repayments.”
