Authors :
Anyumba Margaret Achieng; Dr. Yasin Gabon
Volume/Issue :
Volume 11 - 2026, Issue 7 - July
Google Scholar :
https://tinyurl.com/4m7ftdvw
Scribd :
https://tinyurl.com/34vth5p4
DOI :
https://doi.org/10.38124/ijisrt/26jul852
Note : A published paper may take 4-5
working days from the publication date to appear in PlumX Metrics, Semantic Scholar, and
ResearchGate.
Abstract :
This paper talks about the relationship between inflation and national borrowing chemistry. Inflation hurts and
helps a government's debt at the same time. On the positive side, inflation lowers the actual value of the money the
government already owes in its own currency, making that old debt cheaper to pay back. However, it also creates big
problems: it forces the government to pay higher interest rates on new loans, means lenders will only trust them with
short-term loans rather than long-term ones, and makes the country's overall budget highly unpredictable.
This study looks at real-world data alongside well-known economic ideas, like how inflation naturally pushes up
interest rates (the Fisher Effect) and how political motives influence government financial decisions (Public Choice
Theory). By combining these ideas, the study explains how rising prices make investors demand higher payouts to cover
their risks, and how this forces governments to change how they borrow money.
The paper ends with practical, step-by-step advice for policymakers. These suggestions are designed to help
governments keep their economies stable and keep their debt under control, even when prices in the market are swinging
wildly up and down.
Keywords :
Inflation, Fiscal Policy, Sovereign Debt, Interest Rates, Purchasing Power, Budget Predictability, Sustainable Debt Management.
References :
- Fisher, I. (1930). The Theory of Interest. Macmillan.
- Buchanan, J. M., & Wagner, R. E. (1977). Democracy in Deficit: The Political Legacy of Lord Keynes. Academic Press.
- Keynes, J. M. (1923). A Tract on Monetary Reform. Macmillan.
- International Monetary Fund. (2024). Global Financial Stability Report: Navigating Sticky Inflation and Fiscal Pressures. IMF Publications.
- World Bank Group. (2025). International Debt Report: Trends in Sovereign Borrowing and Structural Volatility. The World Bank.
- Reinhart, C. M., & Rogoff, K. S. (2011). This Time Is Different: Eight Centuries of Financial Folly. Princeton University Press.
- Standard & Poor’s Global Ratings. (2025). Sovereign Debt Indicators: How Inflation Volatility Reshapes Credit Risk. S&P Global Research.
This paper talks about the relationship between inflation and national borrowing chemistry. Inflation hurts and
helps a government's debt at the same time. On the positive side, inflation lowers the actual value of the money the
government already owes in its own currency, making that old debt cheaper to pay back. However, it also creates big
problems: it forces the government to pay higher interest rates on new loans, means lenders will only trust them with
short-term loans rather than long-term ones, and makes the country's overall budget highly unpredictable.
This study looks at real-world data alongside well-known economic ideas, like how inflation naturally pushes up
interest rates (the Fisher Effect) and how political motives influence government financial decisions (Public Choice
Theory). By combining these ideas, the study explains how rising prices make investors demand higher payouts to cover
their risks, and how this forces governments to change how they borrow money.
The paper ends with practical, step-by-step advice for policymakers. These suggestions are designed to help
governments keep their economies stable and keep their debt under control, even when prices in the market are swinging
wildly up and down.
Keywords :
Inflation, Fiscal Policy, Sovereign Debt, Interest Rates, Purchasing Power, Budget Predictability, Sustainable Debt Management.
