How can a huge national debt affect the economy of a country?
Explanation
A huge national debt can affect the economy of a country in the following ways:
(i) The servicing of an external debt will involve an outflow of resources which can otherwise be used for economic development.
(ii) It can reduce the availability of foreign exchange in the form of depleted foreign reserves.
(iii) The servicing of a large internal debt will limit government's ability to provide social capital and services for the people.
(iv) A large domestic debt will influence the distribution of income in the country.
(v) If a large internal debt is sustained by a high rate of interest, it will reduce private investment on capital goods.
(vi) A large external debt can make a country to be susceptible to the whims and caprices of external creditors.