Basically in economic literature we learn two ways in which a country can grow its economy. It can be growth which has been brought about by innovations in the process of competition, which can well be described by the dynamic completion model (Ellig, 2001). On the other hand according to Solow (1956) neoclassical model economic growth can be achieved by an expansion in the amount of investment. According to this model a country will attain economic growth if it increases its savings and investments. This automatically implies that for the least developed countries to grow economically they need to implement policies that support greater savings that will then increase investment and hence growth.

To finance its activities a country has a number of options of raising the funds. It can make use of the internal sources such as taxes and fees or it can borrow if the internal source is not enough to finance the budget deficit. According to Adegbite, E et al (2008) the Dual Gap theory is a better explanation of the reason for opting for external finance as opposed to domestic financing in financing the sustainable development. According to the theory in developing countries the level of domestic savings is not sufficient to finance the needed investment to ensure economic development; since investment is a function of savings it is logical to require the use of complementary external goods and services. However, the relationship between domestic savings and foreign funds gives a guide as to how a country can borrow abroad (ibid). Also since most of LDCs are far from their steady state growth any investment injection could lead then to have accelerated economic growth.

The country should borrow abroad if it is anticipated that the return on the borrowed funds will be higher than the cost, therefore we do expect a country to invest in projects having expected returns higher than the cost of foreign debt. Since if not used wisely, debt can amount to impeding the long term growth prospect of the country. External debt does not transform automatically into debt burden when a country optimally make use of the fund. According to Adegbite et al (2008) in an optimal condition, the marginal return on investment is greater than or equal to the cost of borrowing, in this case debt will show a positive impact on growth.