Assess two likely benefits of debt relief to Angola

Edexcel A-Level Economics Paper 2 June 2023 Extract

Assess two likely benefits of debt relief to Angola. Refer to Extract B in your answer. (10 marks)

1. Debt relief would allow the government of Angola to reduce income inequality and alleviate poverty.
2. Extract B mentions that 17 million people in Angola still live in absolute poverty.
3. Debt relief would reduce the amount the government have to pay on repayments and interest, and gives them a fresh opportunity to manage their budget better.
4. The government would be able to increase spending on services like the provision of free healthcare and education.
5. This would allow better opportunities for families and especially young people to gain skills and find work, which should reduce the chance of absolute poverty rates getting worse.

1. However, it depends on how the government chooses to spend and allocate the extra budget voided by debt repayments.
2. The "provision of vital services" such as education may not have an effect on those living in absolute poverty who may not be able to go to school due to transport costs or because they need to earn an income to support their families.

1. However, debt relief can be wasted if governments are either corrupt or lack knowledge and information.
2. It is imperative that future spending and taxes are adjusted in a way that promotes economic growth.
3. For example, misspending might lead to temporary improvements in services like healthcare but if the economy doesn't grow, it will be difficult for the government to raise tax revenue and maintain a balanced budget consistently.

1. Debt relief can also help Angola to reduce their foreign currency gap.
2. The IMF has loaned Angola $4.5 billion since 2018.
3. The repayment would also likely be in dollars.
4. If the interest payments or some of the debt itself is relieved, Angola would have to sell less of their currency to purchase dollars.
5. Therefore, their currency should stabilise instead of continuing to depreciate.
6. This makes it easier for consumers and firms in Angola to afford essential imports such as medicine and food.

1. However, another disadvantage of debt relief is that it creates a moral hazard.
2. The possibility of debt relief might incentivise countries to take bad loans, as they know that they can be rescued if they fail to make repayments.

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