Types Of National Debt.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.
- Domestic debt.
- 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 of 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.
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.
Types Of National Debt You Must Know.
| Type of Debt | Example | Level of Danger |
|---|---|---|
| Internal Debt | Japan’s debt (90% held domestically) | Low – Money stays in the local economy. |
| External Debt | Pakistan’s debt to the IMF in USD | High – Must be repaid in foreign currency; vulnerable to currency devaluation. |
| Short-Term Debt | 4-week U.S. T-Bills | Medium – Cheap to service, but requires constant “rollover” and trust. |
| Long-Term Debt | 30-year German Bunds | Low – Locked-in rates provide stability, but high fixed interest can burden budgets. |
| Productive Debt | India’s bond-funded solar grid expansion | Low/Sustainable – The infrastructure pays for itself over time. |
| Unproductive Debt | Egypt borrowing to import food subsidies | High/Unsustainable – Provides no future revenue stream to repay itself. |
| Unfunded (Contingent) | China’s hidden local-government property debt | Extreme – Officially “off the books” until a crisis forces the state to absorb it. |
National debt is a complex issue that can have far-reaching implications for a country’s economy. By understanding the different types of national debt, policymakers and citizens alike can make informed decisions about how to manage and mitigate the risks associated with borrowing
