Explanation –

Reduced Fiscal Flexibility: As the state accumulates a large debt burden, it may face constraints on its fiscal flexibility. A significant portion of the budget may be allocated to debt servicing, limiting the resources available for other essential public expenditures.

Increased Risk of Default: A large debt burden raises the risk of default, especially if the state struggles to meet its debt obligations.

Credit Rating Downgrades: Accumulating a large debt burden may result in credit rating downgrades by credit rating agencies. A lower credit rating indicates a higher risk of default, leading to increased borrowing costs for the state.

However, crowding in investment is not a typical consequence of a large state debt burden. In most cases, high debt leads to higher interest rates, discouraging private investment and hindering economic growth. High debt levels can often lead to crowding out investment instead, as higher interest rates make it more expensive for private businesses to borrow and invest.

Source: Forum IAS