What Is National Debt In Economics,And Why It is Important

National  debt refers to borrowing by a Government from within the country or from abroad. It may from private individuals or association of individuals or from bank borrowing and non­banking financial institutions. Borrowing by public authority is a modern practice.It is also renowed as goverment debt, publich debt and soveriegn debt.

What Is National Debt In Economics,And Why It is Important

Types Of National Debt

  1. Domestic debt.
  2. Foreign debt.

Domestic Debt:

The budget has its two sides i.e. revenue and expenditure. When the government expenditures exceed its revenues, the difference is called budget deficit which is met by deficit financing and government has to borrow from public, commercial banks and the central bank Therefore, these internal loans are called internal public debt.

FOREIGN DEBT

When the value of import exceeds the value of exports o* a country, it is called trade deficit. When the budget deficit and trade deficit are met by external sources, it is called foreign debt

The causes of the rapid growth in the external debt are:

  1. Persistence of a large current account deficit i.e. almost: 5% of GDP for an extended period of one decade.
  2. The imprudent use of borrowed resources.
  3. Rising real cost of government borrowings.
  4. Stagnant exports and a declining’ flow of foreign- exchange.
  5. Changing nature of debt, from being grant and soft ter- assistance oriented to hard term loans.
  6. Pressure on exchange rates as a result of weak external sector.

DEBT SERVICING

The sum of interest payments and repayments of principal on the external debt and liabilities is called debt servicing. It seems that foreign loans have increased the productive capacity of the economy and the country has got the capacity to repay the loans along with interest upon these loans. By analyzing, the problems of debt senescing and the burden of out-standing foreign debt are increasing. The reasons of this problem are as below.

What Is National Debt In Economics,And Why It is Important

 You Must Know The Causes Of Heavy Indebtedness In National Debt.

  1. TIED AID

Most of the loans a^e in the shape of tied aid and are given . under certain hard conditions.

  1. NOT AVAILABILITY

At the time of need, the loans are not easily available.

  1. UNPRODUCTIVE USE

The major portion of loans comprises of unproductive use..

  1. RED-TAPISM

The loans are not properly used due to departmental formalities and red-tapism.

  1. POLITICAL INTERFERENCE

There is political interference in the use of these loans in the shape of Social Action Programme, Tamer-I- Watan Programme People’s Works Programme etc.

  1. NON PRODUCTIVE CHANNELS

Most of the foreign loans are used in education, health, family planning. These loans produce human capital in the long run. These have no results in short-run.

  1. MORE IMPORTS

Exports earnings are low as compared to import payments and there exist nothing which could be used for the repayment of foreign debt.

  1. SHORTAGE OF FOREIGN EXCHANGE

There is a shortage of foreign exchange earnings which is used for debt servicing.

  1. DECLINE IN FOREIGN REMITTANCES

The volume of foreign remittances has declined due to some international factors. These help little to pay foreign loans.

  1. NO CONCESSIONS

The lending agencies or countries do not allow concessions like grace periods, exemptions, rescheduling etc. because they provide loans under commercial considerations.

  1. DEBT SERVICING

The foreign debt is used in the shape of debt servicing charges.

  1. DEPRECIATION OF CURRENCY

The value of our currency is being devalued daily. It is also an important cause of debt burden.

  1. DECLINING TREND OF NET TRANSFER

The net transfer is the difference between the Gross disbursement and debt servicing payment. The trend of ne’ transfer payment is declining. It is also a cause c’ increasing of debt burden.

What Is National Debt In Economics,And Why It is Important

 

Steps TO Reduce The  National Debt Burden

In view of our loudly proclaimed goal of achieving self- reliance as well as sustaining high rate of -growth in ar imbalance of stability, the following steps should be taken & reduce the external debt and solve the debt servicing problems.

  1. DEBT RETIREMENT PROGRAMME A national debt retirement programme should launched.
  2. BOOST EXPORTS Various steps should be taken as special drive to boo exports.
  3. LIBERAL INCENTIVES Liberal incentives should be provided to attract fore: investment.Special incentives and schemes should be introduced to improve national savings.
  4. TO DECREASE THE GROWTH OF DEBT

To ensure that the growth of external debt does not outstrip the capacity to service it.

5 COST OF DEBT-SERVICING

To minimize the cost of debt-servicing.

  1. MICRO ECONOMIC MANAGEMENT

To integrate debt service management with macro economic management.

  1. INCREASE EXTERNAL RESOURCES

To ensure adequate net transfer of external resources.

  1. REDUCE DEPENDENCE

To gradually reduce dependence on external loans.

  1. BETTER UTILIZATION

To increase the rate of utilization from the existing pipeline of un-disbursed loans.

  1. FOR NATURAL CALAMITIES

To maintain a margin of borrowing capacity for unforeseen emergencies.

  1. FOREIGN REMITTANCES

Try to increase foreign remittances.

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