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The Aftermath of Public Borrowing

08 Feb

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Most underdeveloped and developing countries of the world depend on external sources like loans from the IMF, world bank and other financial institutions for the efficient financing of their budgets. This dependence accumulate to become what is known as debt.Debt is that part of a nations finance that was acquired from external sources based on stated agreements. The degree of dependency on foreign support however differs if it were to be measured across the various developing countries. That is to say some countries are more dependent on foreign support than others. This support comes in form of either grants or loans for running their domestic expenses such as infrastructural development, job creations and even for the payment of salaries amongst other reasons. Of cause the fact that so many countries for genuine reasons may need to rely on foreign support is not the quagmire in this work. The problem is rather a question as to what eventually becomes the effect of the debt on the entire economy.
Billions of Naira have being borrowed by Nigeria for instance between the period of 1958 till date in terms of either grants or loans by either the foreign administrators or the indegenious administrarors that later emerged.The debt incurred over the years though possesses a lot of advantages also have some negative aftermath. For every country that borrows , there is bound to be an increase in their foreign debt stock which without doubt may tend to reduce the credibility of such a nation for subsequent borrowing.This because of the perception that the borrowing nation may not be able to repay due to already existing debts.
The debt servicing burden is also an issue that could end up frustrating the essense for which debt was originally incured by a nation. The fact that the resources that is spent on servicing debt would have being used to finance some other important Projects in the country makes the debt servicing burden an unpleasant aftermath.
Another issue that may arise from public debt or borrowing is the fact that it may lead to surplus money in the economy thereby leading to capital flight which may discourage domestic private investment. The surplus funds in the economy encourages people to engage in more of importation than exportation.
Recommendations
I hereby wish to recommend that other methods of raising finances like effective taxation policy be adapted by the government as against the venture of borrowing.
Secondly if borrowing must be undertaken by any government, it should be based on the fact that there is obviously no other feasible alternative.
And finally if borrowing must be taken, effective measures (disciplined administration) must be ensured to manage and reduce the negative aftermaths of borrowing.
Written by
Julius Ojonugwa Akubo
Pauljulius90@gmail.com
+2348069230929

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Posted by on February 8, 2016 in Economy with Julius

 

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