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Explain six disadvantages of using foreign debt as a source of finance to the government of your country.

      

Explain six disadvantages of using foreign debt as a source of finance to the government of your country.

  

Answers


Kavungya
• If the debt is not properly applied to variable projects, it accumulates to become a drain on the country’s resources.
• Foreign debt can drain the country’s foreign exchange reserves hence adversely affecting the exchange rates.
• Excessive government borrowing leads to an increase in local interest rates where financial institutions increase their lending rates.
• If the debt is contracted recklessly, it quickly becomes a burden to the citizen.
• Sudden capitals in-flight and debt financing can lead to currency crisis, which causes uncertainty and instability for business and adds to inflationary pressures.
• Loss of control over economic decision making, which is economic dependence.
Kavungya answered the question on May 6, 2022 at 06:06


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