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What are the disadvantages of public debt?

Asked by Topperlearning User 24th April 2015, 7:39 AM
Answered by Expert

Public debt is raised by the government when its taxation revenue is insufficient to meet the public expenditure. If the government borrows in excess of the required amount; it may lead to a debt trap situation. In such circumstances, the government borrows to pay interest on old debts. This will impose a greater burden on the society.

External debt leads to an outflow of economic resources from the country. When the loan is availed from the foreign agencies, the interest payments will flow from the domestic nation to the foreign nation. Added to this, if there is any condition applied in the loan process that the required inputs for the project will be purchased from abroad rather within the domestic nation, the burden of external debt will be still greater.

Answered by Expert 24th April 2015, 9:39 AM
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