Disadvantage of public borrowing
- Public borrowing leads to foreign exchange outflow and consequently balance of payment deficits in long run during debt servicing
- Loans are public burdens because it is the public that will repay the loans through increased taxes to the government
- Borrowing encourages laziness among the nationals and consequently dependence on foreign nations. This retards the rate of economic growth.
- External borrowing leads to inflationary situation in economy. This is because externally borrowed funds are exchanged into local currency, which increase the amount of money in the circulation leading to demand push inflation
- Servicing external debt leads to reduced domestic saving, investment and low per capita accumulation in the country. This retards the rate of economic growth
- Borrowing encourages extravagancy. If a government borrows a lot of funds from external sources and spends these funds extravagantly, it reduces the sense of responsibility and this puts the nation into heavy debt burden for misuse of funds.
- In paying back the loan, the government has to cut down its expenditure on some services such as education, health, etc. and this reduces the standard of living.
- Unproductive long term loans shift the repayment to future generation that do not necessarily have benefited from such loans.
- At times borrowed funds are accompanied by expatriates who in most cases repatriate profit to their home countries. This also limits generations of employment opportunities for that nationals.
- Internal borrowing worsens income inequality. This is because the poor are asked to pay huge sum of money in form of taxes to repay the rich who often lend to the government. Thus the resources tend to flow from the poor to the rich
- In case the external debt s to be repaid in terms of goods and services, it deprives the citizen of a variety of the goods and services that would be locally consumed
- A heavy public debt (due to borrowing) can lead to selling off government property to pay off the debt. This property can however, be sold at a giveaway price which is a loss to the country.
CATEGORIES General
TAGS Dr. Bbosa Science
