Public Debt

This is also known as National debt. It is the money a nation owes a citizen, other nations, or international organizations like IMF, World Bank, International Bank for Reconstruction and Development (IBRD), etc. It is the total debt owed by the government of a country both externally or locally.

Instrument of Government Borrowing 

1. External borrowing by negotiation

2. Development stocks that are used for long term borrowing

3. Medium term borrowing of 1-2 years 

4. Treasury bills are securities used for short term borrowing for 90days which carry low interest

Types of National Debt

1. Loans for socio economic needs

2. Balance of payment support loans

3. Trade arrears or trade debts

4. Loans contracted to finance investment and accelerate economic development and growth.

Internal Debt

It is the debt a country owes its citizens and financial institutions within her territory.

External Debt

These are debts a country owes to other nations or international organizations like IMF, World Bank. External debt can be classified into reproductive or dead weight.

A debt is reproductive when it is used to acquire assets such as electricity, pipe-borne water, educational facilities, hospitals, etc.

A debt is said to be dead-weight when it does not acquire any asset, like the importation of food items, firearms to finance wars, etc.

Reasons for National Debt

1. It enables the government to embark on large capital projects

2. The government borrows to correct balance of payment deficit

3. The government borrows in order to cater for unforeseen emergencies

4. The government borrows for economic development 

5. To finance public corporations

6. The government borrows in order to bridge the gap between expenditure and revenue