Excessive national debt is one of the main threats to a country and all its citizens. The implication of excessive national debt might not be apparent to a large section of the public. Even though it is a significant and highly debated issue in the global arena, most citizens are unaware of how this harms their everyday lives.
A country’s national debt is the amount of money the federal government owes. The national debt includes both public and private debt. Public debt includes debts held by investors who purchase treasury securities, such as bills or notes. The national debt also consists of any amounts borrowed by the Treasury Department to fund government operations.
The national debt is a good thing when it’s paid off. The debt is not good when it’s growing. Growing national debt is like a family that does not pay its bills. It makes everyone poorer because everyone has less to spend on other things. The national debt is not only bad for the country, but it’s also bad for the government. If we are living beyond our means and paying for things with money that should go to paying down our debts, then we will have less money available for other things such as education or health care.
When a country’s economy becomes weak, and there is not enough money to cover all expenses, it will have to borrow money from other countries or organizations to finance its budget deficit. In this case, the government must repay all its debts at some point (even if they are not fully paid off).
When is the national debt terrible and dangerous?
It is when it gets to the point where interest payments are more than the tax revenue. In other words, when there is not enough money to pay the interest on the national debt, it’s time to ask, “Is this debt good for us?”. This situation has been happening for decades. According to information from the 2022 fiscal performance report for January through April, Nigeria’s total revenue was N1.63 trillion, while the amount spent on debt service was N1.94 trillion, a difference of nearly N300 billion. The excessive national debt has worsened Nigeria’s fiscal position.
The effects of excessive debts on a country are manifold and can be categorized as follows:
- The first is that it affects the growth rate. A country with high public debt will be faced with a higher interest rate, leading to less economic investment and, thus, a lower growth rate.
- Another effect of excessive debts is that they can lead to inflation, hurting exports, decreasing employment, and increasing unemployment rates.
- It also impacts government revenues, as taxpayers pay more taxes for services rendered by the government due to an increased debt burden.
- A high level of government debt also affects financial stability by increasing the probability of defaulting on payments by the debtor nation’s creditors (i.e., bondholders, etc.).