As the country could not attract more foreign investors, it started entering into a further debt trap, resulting in its complete inability to repay and resulting impact on its exchange rate. The country continued to have large public debts, and this kept foreign investors at bay. Take, for example, the situation that we are seeing in Sri Lanka. The higher a country’s public debt, the higher the chances of the economy entering into inflation in the long run. Public debt refers to a country’s government borrowings to deploy funds in various infrastructure and other development projects. Depending on whether foreign investors enter or exit the economy for longer periods, the country will see either a rise or decline in the inflow of funds and therefore a corresponding impact on its currency exchange rate. Therefore, the more stable a country’s economy, the more attractive it will be to foreign investors. This results in poor economic performance, which then keeps investors away from the country’s economy. Oftentimes, countries across the globe may experience political instability.
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