NATIONAL DEBT

Taxation does not often raise sufficient revenue for the Government Expenditure.  So, governments resort to borrowing.  This government borrowing is called Public debt or National debt, it thus refers to the government total outstanding debt.  This debt increases whenever the government runs a deficit for then it has to borrow to pay for the excess of expenditure over taxes and other receipts.

Public Debt is undertaken basically for two reasons:

a.           Given the scarcity of our resources, it is necessary for the government to borrow funds in order to speed up the process of economic development.

b.          Export earnings of foreign exchange usually fall short of the needed outlays for imports.  In order to cover this foreign exchange deficit on transactions, it is necessary for the government to borrow from abroad.  In the short-run therefore, the external debt is incurred to finance balance of payment deficits.  These deficits are incurred in the course of importing vital consumers and producer goods and services.