What is the role of government debt in an economy?

Government debt plays an essential role in financing public expenditures when a country’s budget deficit exceeds its revenues. Governments borrow money by issuing bonds, which they promise to repay with interest. Debt can be used to fund infrastructure projects, social programs, and other investments that stimulate economic growth. In the short term, borrowing can help governments respond to economic crises, such as recessions or natural disasters. However, excessive government debt may lead to higher interest payments, which can reduce fiscal flexibility and contribute to financial instability. Sustainable management of government debt is crucial for long-term economic health.