Question

Why a high level of government debt is a matter of concern?

Answer 1

A high level of public debt is beneficial in the short run as the government gets a huge amount of funds to finance its projects and drives economic growth, however, in the long run, a large amount of debt is a matter of concern as it will lower economic growth by passing the burden of debt on the future generations.

In the long run, the government will have to pay a large amount of funds as interest payments on these debts to the investors which will likely cause a country to default on its debt. The interest rate will rise as the investors would want a higher return on their investments and refinancing the debt becomes expensive which will lead to more revenue being spent on debt repayment and the government will have fewer funds to spend on its development projects. This will lead to a sovereign debt crisis situation and lower the economic growth rate and lower real income per capita.