Define debt sustainability in macro development context.

Define debt sustainability in macro development context.

• A. The total level of external debt divided by the population.
• B. Debt remains manageable relative to GDP and export earnings.
• C. The ability to borrow unlimited funds without interest.
• D. The commitment to pay only interest on debt.

Answer: (B)

Debt sustainability in macro development means the ability of a country to keep its debt burden at a level that it can comfortably service over time, given its growth prospects and foreign exchange earnings. In practice, this looks at whether the debt stock and the resulting debt service costs compare reasonably with the economy’s size (GDP) and with the income it can generate from exports. If the debt-to-GDP ratio stays steady or declines as the economy grows, and the debt service requires only a manageable share of export earnings, the debt is considered sustainable. But if debt grows faster than the economy or debt service consumes a large and rising share of exports, the country faces rising risk of distress and may need policy adjustments or support. This aligns with the idea that debt remains manageable relative to GDP and export earnings. Debt per capita or pursuing unlimited borrowing without costs do not capture the ability to repay in the future, and paying only interest ignores principal repayments, giving a misleading picture of sustainability.

Debt sustainability in macro development means the ability of a country to keep its debt burden at a level that it can comfortably service over time, given its growth prospects and foreign exchange earnings. In practice, this looks at whether the debt stock and the resulting debt service costs compare reasonably with the economy’s size (GDP) and with the income it can generate from exports. If the debt-to-GDP ratio stays steady or declines as the economy grows, and the debt service requires only a manageable share of export earnings, the debt is considered sustainable. But if debt grows faster than the economy or debt service consumes a large and rising share of exports, the country faces rising risk of distress and may need policy adjustments or support.

This aligns with the idea that debt remains manageable relative to GDP and export earnings. Debt per capita or pursuing unlimited borrowing without costs do not capture the ability to repay in the future, and paying only interest ignores principal repayments, giving a misleading picture of sustainability.