Question

Public debt arises as a result of financing successive budget deficits through borrowing. The public debt stock as at March 2020 stood at GHC 236.1 billion according to the Bank of Ghana. There have been arguments for and against borrowing by government and the opposition all these years depending on where they find themselves.

As a student of Public Finance, is borrowing good or bad? Justify your position by coming out with all the relevant arguments for and against your decision.

Answer 1

Government Borrowing:- Borrowing is like a loan, which is taken by government for spending on public servics and benefits.The government wants to pay for the tax cuts, new defence spending and reforms of the health system for this the government is using borrowing method.Borrowing plays an important role to meet its spending requirements.

Advantages of government borrowing:-
1. create investment opportunities,
2. help in recession time,
3. deal with crisis,
4. financing higher education,
5. fulfill spending requirements.

Problems of high government borrowing:-
1.Higher debt interest payments,
2. Higher interest rates,
3. Crowding out of private sector,
4. Higher taxes in the future time,
5. Unsafe to capital flight,
6. Inflationary pressures,
7. public debt aries.
In the end, we can say that borrowing is good in limited criteria,higher government borrowing creats problems to the government.