how capital flight, or the removal of assets from a country, can lead to increased debt levels. External borrowing does not necessarily add to a country's foreign currency reserves as intended, but instead appears to be used to finance the flight of capital. This means that foreign debt is not always a result of genuine borrowing for economic development, but rather a means of financing the fleeing of capital, which can have a detrimental effect on the economy and lead to further financial instability.
The Detrimental Effects of Capital Flight on Debt Levels and Economic Stability
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