How does external borrowing prevent stifling of the local economy as compared to internal borrowing? Kindly explain.., for the Kenya's case it is both the external and internal debt that is being serviced, either way the loan must be paid. I understand borrowing internally has more advantages compared to borrowing externally. The only major advantage of borrowing externally is the use of foreign currency, which is somewhat stable and can withstand shocks compared to local currencies..,
Kwa debt, Kenya na Tanzania and many African countries are at a disadvantage in a big way.., but nyie mko mbaya zaidi with a bigger external debt in comparison to having an internal debt..,
The most crucial disadvantage of external debt is that it often leads to a vicious cycle of debt for countries, which refers to a cycle of continuous borrowing, accumulating payment burden, and eventual default. When a government’s expenditure exceeds how much it earns in a year (like it is in Tz and kenya), it faces a fiscal deficit. In order to finance the adverse gap, the government borrows money from another country. In the next year, with the additional expense of interest payment and loan repayment, the government might face a deficit again and be forced to take another external loan. In subsequent years, there might be a situation where it borrows money in order to repay its previous loans, exactly what Kenya and Tz is doing and most African countries and few European nations.
A country with a high amount of external debt raises caution among prospective lenders, and they become unwilling to lend more money. This is the case with Tanzania!, and since the said country cannot raise further debt, it might fail to repay external debt, a phenomenon known as sovereign default. Therefore, the debt cycle culminates in an almost bankrupt nation, and many other lender-nations facing bad loans.