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.
Types Of National Debt
- Domestic debt.
- Foreign 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.
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:
- Persistence of a large current account deficit i.e. almost: 5% of GDP for an extended period of one decade.
- The imprudent use of borrowed resources.
- Rising real cost of government borrowings.
- Stagnant exports and a declining’ flow of foreign- exchange.
- Changing nature of debt, from being grant and soft ter- assistance oriented to hard term loans.
- Pressure on exchange rates as a result of weak external sector.
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.
You Must Know The Causes Of Heavy Indebtedness In National Debt.
- TIED AID
Most of the loans a^e in the shape of tied aid and are given . under certain hard conditions.
- NOT AVAILABILITY
At the time of need, the loans are not easily available.
- UNPRODUCTIVE USE
The major portion of loans comprises of unproductive use..
The loans are not properly used due to departmental formalities and red-tapism.
- 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.
- 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.
- 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.
- SHORTAGE OF FOREIGN EXCHANGE
There is a shortage of foreign exchange earnings which is used for debt servicing.
- DECLINE IN FOREIGN REMITTANCES
The volume of foreign remittances has declined due to some international factors. These help little to pay foreign loans.
- NO CONCESSIONS
The lending agencies or countries do not allow concessions like grace periods, exemptions, rescheduling etc. because they provide loans under commercial considerations.
- DEBT SERVICING
The foreign debt is used in the shape of debt servicing charges.
- DEPRECIATION OF CURRENCY
The value of our currency is being devalued daily. It is also an important cause of debt burden.
- 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.
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.
- DEBT RETIREMENT PROGRAMME A national debt retirement programme should launched.
- BOOST EXPORTS Various steps should be taken as special drive to boo exports.
- LIBERAL INCENTIVES Liberal incentives should be provided to attract fore: investment.Special incentives and schemes should be introduced to improve national savings.
- 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.
- MICRO ECONOMIC MANAGEMENT
To integrate debt service management with macro economic management.
- INCREASE EXTERNAL RESOURCES
To ensure adequate net transfer of external resources.
- REDUCE DEPENDENCE
To gradually reduce dependence on external loans.
- BETTER UTILIZATION
To increase the rate of utilization from the existing pipeline of un-disbursed loans.
- FOR NATURAL CALAMITIES
To maintain a margin of borrowing capacity for unforeseen emergencies.
- FOREIGN REMITTANCES
Try to increase foreign remittances.