Causes of budgetary deficits in LDCs.
- Most LDCs have low taxable capacity which necessitates borrowing to supplement revenue from taxation.
- At times Uganda like many LDCs experiences unexpected drought and food shortages which has necessitated expenditure hence budget deficit.
- Most LDCs have a high population growth rate which requires more resources for survival hence limiting capital formation.
- Most LDCs still maintain a large subsistence sector which is not productive thereby increasing the need for further government expenditure.
- Most LDCs raise less revenue from taxation due to massive tax evasion and avoidance. This makes them to resort the borrowing.
- Most governments in LDCs tend to involve themselves in unproductive joint ventures especially parastatals hence increasing the indebtness and associated problems debt servicing.
- Inadequate accountability in most LDCs has led to financial mismanagement of funds that necessitates budget deficits.
- LDCs maintain a large but unproductive civil services which drains the scarce resources.
- The ever deteriorating terms of trade have led to B.O.P difficits which further force LDCs to resort to budget deficits.
- Introduction of price controls in LDCs tend to switch production to non taxable commodities.
- The increased expenditure in military hardware and defence requirements leads to deficit.