IGCSE Development Studies: Specimen Questions with Answers 66 - 67 of 98

Explanation

Structural adjustment Programme (SAPs) are economic policies for developing countries that have been promoted by the world bank and international Monetary fund (IMF) since the early 1980s by the provision of conditional loans on the application of such policies. SAP is designed in such a way to ensure that the debtor country is continuing to make the payments of debts. It is considered as a free market reforms and are made conditional on the assumption that will make a nation in question competitive and to grow.

Countries Are Supposed to Make One of the Following Combinations

• To reduce BOP deficits, it must devalue its currencies.
• Cutting down expenditures like public sector employment, subsidies, and other expenditures.
• Privatization of state-owned enterprises
• Devaluation of state-owned industries.
• Improvement in the process of tax collection and reducing the tax loopholes.

Explanation

External debt refers to the money borrowed from source outside the nation. The money borrowed must be paid back in the currency in which it is borrowed. External debt is borrowed from

• Commercial banks
• International financial institutions
• Government of foreign nations

These types of loan are generally taken in the form of tied loans i.e.. these loans are used for a predetermined purpose between the borrower ad the lender. Corporations and government are also eligible to take loans from other nations. These loans are in the form of external commercial borrowings. The rate of interest on foreign loans is linked with London Interbank Offer Rate.