Abstract
Historical evidences provide some useful insights on the role and importance of external financing. Debt sustainability is eventually related to the cost of debt and benefits from the utilization of incremental debt. External debt and equity will remain viable options if their cost is less than the incremental GDP growth. Short-term external borrowing is identified as the most effective mode of financing that improves the quality of infrastructure and helps the countries to maintain the liquidity position for the perpetuity and survival of their institutions. Though external long-term debts to the public sector support infrastructure development, their effect on tax collection is negative. Such debts may be utilized to subsidize the domestic economic activities.
Published Version
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