What is the term used when the debt burden is so great that a unit cannot afford to take additional loans to finance future projects?

The correct answer is Debt-overhang.

Key Points

• Debt-overhang refers to a situation where the existing debt burden is so large that a unit cannot take on additional debt to finance future projects.
• This condition often discourages investment and economic growth, as the returns from new projects may primarily benefit existing creditors.
• Debt-overhang is commonly discussed in the context of sovereign debt crises, where countries struggle to secure new financing due to high existing debt levels.
• It can lead to a vicious cycle where high debt levels prevent investment, reducing economic growth and making it even harder to repay the existing debt.

Additional Information

• Cross-subsidization
  • This is a practice where the revenue from one product or service is used to subsidize another product or service.
  • It is often used in regulated industries to keep prices lower for essential services.
• Debt trap
  • A situation where a borrower is unable to make payments on their debt, leading to a cycle of increasing debt and higher interest rates.
  • Debt traps can occur at both individual and national levels.
• Economies for sale
  • Refers to a situation where a country or entity sells its assets or resources to foreign investors to raise funds.
  • This term is often used in a critical context, suggesting a loss of sovereignty or control.
• Sovereign debt crisis
  • A situation where a country is unable to pay back its government debt, leading to economic instability.
  • Examples include the Greek debt crisis and the Latin American debt crisis of the 1980s.