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- 6 Marks
Question
The use of debt for a country’s financing has engaged the attention of economists and also the ordinary man in the interest regarding its impact on our economy. While some prefer domestic debt, others are making a case for foreign debts as part of government’s fiscal policy.
Required:
What are the benefits to a government for going in for a foreign debt as opposed to going in for domestic debt as a support to the revenue base from taxes? (6 marks)
Answer
The benefits of foreign debt as opposed to domestic debt are as follows:
- More inflows from foreign sources to support national development.
- The private sector can borrow locally to expand businesses as they have no competition from the government.
- Government can carry out its projects successfully as loans from foreign sources can be acquired in larger amounts.
- Loans from foreign sources can be used to support local firms that might not be able to acquire such loans due to lack of collateral or poor credit ratings.
- Borrowing from foreign sources leaves more liquidity in the domestic economy for locals to spend, boosting economic activity.
- Tags: Domestic Debt, Fiscal Policy, Foreign Debt, Government Revenue
- Level: Level 3
- Topic: Tax administration in Ghana
- Series: NOV 2018
- Uploader: Dotse