A country is said to be in a debt trap if
- It has to abide by the conditionalities imposed by the International Monetary Fund
- it has to borrow to make interest payments on outstanding loans
- it has been refused loans or aid by creditors abroad
- The World Bank charges a very high rate of interest on outstanding as well as new loans
Explanation
Option (b) is correct
- A debt trap occurs when a country is unable to repay its existing debt and therefore has to take new loans merely to service old loans and interest payments. This creates a cycle of increasing indebtedness and financial dependence.
