Question

b) The use of debt by countries to finance national budget has engaged the attention of economists,
tax practitioners and the ordinary man in the interest regarding its impact on the economy. While
some prefer domestic debt, others are making a case for foreign debts as part of government’s fiscal
policy.
Required:
Present a report on the benefits to a government for going in for a foreign debt as opposed to going in
for domestic debt as a support to revenue base from taxes.

Answer 1

When the money was borrowed within the economy, then the debt formed as a result of this borrowing is termed as domestic debt. This debt is owned to money lenders within an economy or in domestic level.

When the money was borrowed from outside of the economy, then the debt formed as a result of this borrowing is termed as external debt or foreign debt. These are loans that one nation owe to another nation.

Government prefer borrowing inorder to meet the country's present financial shortages. Borrowing can prevent the government from cutting the cost or spendings.

Foreign debt or external debt provides the nations to acquire the foreign capital, rises the investments, rises the financial globalization which is the source for development of the nation. Thus this also increases the purchasing power, emergence relief capabilities and supports uneven cash flows.

These are the reasons for which the government prefers foreign debt over domestic debt.

Thanks!..