Dear Muhammad,

I came on the internet across and found a plenty of papers in this regard. please have a look at them.

sincerely,

Zahra

https://www.researchgate.net/publication/305216635_Real_Effects_of_Inflation_on_External_Debt_in_Developing_Economies_REAL_EFFECTS_OF_INFLATION_ON_EXTERNAL_DEBT

https://onlinelibrary.wiley.com/doi/abs/10.1002/ijfe.1553

https://www.elibrary.imf.org/view/IMF022/12480-9781616353476/12480-9781616353476/12480-9781616353476_A013.xml?language=en&redirect=true

http://www.ecoforumjournal.ro/index.php/eco/article/view/961

https://www.jstor.org/stable/40325137?seq=1

https://dergipark.org.tr/tr/download/article-file/289249

If moderate inflation boosts the local economy then a growing economy will be able to reduce foreign debt. If inflation is very high this will stagnate the economy and lead the country to bankruptcy. A high inflation country sees almost always reduction in real GDP and the standard of living of the country and inability of the country to service the foreign debt, as holders of domestic foreign debt do nor accept payments in the local currency of the country. This means exports need to rise or the country must create a favorable environment to attract Foreign Direct Investment or both. I hope this helps G K Zestos

Dear Muhammad Dawood , thank you very much for sharing your interesting question. I take the boldness to write, far from being an expert on the subject.

I share with George K. Zestos , that if there is an increase in economic growth in foreign currency, the relative weight of its external debt decreases, by a simple mathematical relationship , isolating any other types of factors. On the other hand, as George K. Zestos states that inflation can slow down the dynamics of economic activity, I believe that in developing countries -mainly in Latin America-, the latter process is more in line with historical facts.

Given the level of indebtedness of developing countries, there is a need to reach a certain trade surplus target. This is achieved through an increase in domestic savings, generating an increase in the gap between the wealth produced by the country and the goods and services available for domestic consumption and investment. On the one hand, the need to depress imports and increase exports to pay interest is highlighted.

On the other hand, how to finance the increase in the trade surplus. One possibility is the monetary emission of the deficit public sector to pay the debt. This inflationary adjustment decreases the relative share of consumption and investment in total output. The second is an adjustment of the State to acquire the necessary foreign exchange, without expanding the money supply -no inflation is generated-, however, the decrease in public spending in Latin America generates an increase in the distributive struggle, which as a consequence emanates inflationary pressures.

On the other hand, among other elements that affect the external debt. It is worth mentioning the difficulty of carrying out policies of economic growth and technological change. In Latin America, foreign debt and inflation promote a scenario of capital flight and increased speculation. Therefore, external and internal public debt would be connected to financial crises and economic growth, due to the deepening of a vicious circle of increasing debt and slowing economic growth.

Sorry if the content does not relate to your question, and apologies for the length. We look forward to the contributions of more colleagues who are working on these issues, to sort out the ideas.

Best regards and thanks

Fernando (from Argentina)

Estimado Muhammad Dawood, muchas gracias por socializar su interesante pregunta. Me tomo el atrevimiento de escribir, lejos de ser un experto en la temática.

Comparto con George, que, si se produce un aumento del crecimiento económico en moneda extranjera, el peso relativo de su deuda externa disminuye, por una simple relación matemática, aislando cualquier otro tipo de factores. Por otra parte, tal como afirma George la inflación puede frenar la dinámica de la actividad económica, creo que en los países en desarrollo – principalmente en América Latina-, este último proceso se ajusta más respecto a los hechos históricos.

Dado el nivel de endeudamiento de los países en desarrollo, se impone la necesidad de alcanzar cierta meta de superávit comercial. Este se logra mediante un aumento del ahorro interno, generando un incremento de la brecha entre la riqueza producida por el país, y los bienes y servicios disponibles para consumo e inversión doméstica. Se destaca, por un lado, la necesidad de deprimir las importaciones e incrementar las exportaciones para pagar los intereses.

Por otro como financiar el aumento del superávit comercial. Una posibilidad es la emisión monetaria del sector publico deficitario para pagar la deuda. Este ajuste inflacionario disminuye la participación relativa del consumo y la inversión en el producto total. La segunda es un ajuste del Estado para adquirir las divisas necesarias, sin expandir la oferta monetaria –no se genera inflación–, no obstante, la disminución del gasto público género en América Latina, un incremento de la puja distributiva, que como consecuencia emana presiones inflacionarias

Por otra parte, entre otros elementos que afecta la deuda externa. Cabe hacer referencia a la dificultad de llevar adelante políticas de crecimiento económico y cambio tecnológico. En América Latina, la deuda externa y la inflación, promueven un escenario de fuga de capitales e incrementó de la especulación. Por tanto, deuda pública externa e interna tendría conexión con las crisis financieras y el crecimiento económico, debido a la profundización de un círculo vicioso de incremento de la deuda, y enlentecimiento del crecimiento económico

Perdón si el contenido no se relaciona a su pregunta, y disculpas por la extensión. Esperamos los aportes de más colegas que están trabajando estos temas, para que ordenen las ideas.

Un saludo y gracias

Fernando (desde Argentina)

Depends in which currency the debt is quoted. Often it will be US $, so in case of domestic inflatiron and ppp theory, the LDC has to pay a higher amount of domestic currency for the interest payment and the repayment

Great answers respected scholars. Zahra Lashgari George K. Zestos Fernando Ariel Manzano Jan Jansen

You are Welcome!