Negative effects/disadvantages/demerits of public borrowing

Negative effects/disadvantages/demerits of public borrowing

  • It encourages dependency / laziness.
  • Undermines capital formation due to debt repayment
  • It is inflationary i.e. a case with external borrowing
  • Worsens the Balance of Payment (B.0.P) position
  • Shifts the burden of debt repayment to the future generation who may not have benefited from the debt but pay it.
  • Worsens income inequality
  • Leads to manipulation of the country by foreigners
  • Leads to misallocation of resources / extravagance /corruption
  • Citizens are being burdened by taxes to raise revenue for debt repayment.
  • External debt payment limits import capacity
  • Undermines private investment due to public borrowing outcompeting private investment in both the money and capital markets
  • Nationals are denied essential goods due to debt repayment.
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