A country is said to be in debt trap if

A debt trap describes a situation where a borrower finds it difficult or impossible to repay debt because high interest payments consume available resources and force the borrower into repeated re-borrowing or rolling over loans; the borrower effectively borrows to pay interest on outstanding debts [1]. This rollover cycle—where interest servicing requires new borrowing—creates persistent indebtedness and vulnerability. The definition focuses on inability to service principal due to interest burdens rather than external factors like conditionalities, refusal of credit, or a single creditor’s pricing. High-cost borrowing that leaves little income for other needs reinforces this trap by increasing the share of earnings devoted to debt service and requiring further borrowing to meet obligations [2].

Sources

1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 16: Terminology > 16 Terminology > p. 455
2. [2] Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > FORMAL SECTOR CREDIT IN INDIA > p. 48