Sources and structure of public debt

by arjan kc
0 comment 2 minutes read

Sources and Structure of Public Debt
Sources of Public Debt:
Public debt is obtained through various sources, both domestic and external, to finance government expenditures. Governments utilize these sources based on factors such as cost, availability, and financial stability. Here are the common sources of public debt:
Domestic Debt: This type of debt is borrowed from individuals, institutions, and organizations within the country. It is often in the form of government bonds and treasury bills.
External Debt: Governments borrow funds from foreign entities, including foreign governments, international organizations, and commercial banks. External debt helps access foreign currency and international capital markets.
Multilateral and Bilateral Loans: Governments can obtain loans from international organizations such as the World Bank, International Monetary Fund (IMF), and bilateral sources like other governments.
Commercial Loans: Governments borrow from commercial banks and financial institutions, either domestically or internationally.
Sovereign Bonds: These are long-term debt securities issued by governments in international capital markets. They allow governments to raise substantial amounts of funds from global investors.
Structure of Public Debt:
The structure of public debt refers to how the debt is categorized and managed. It includes elements such as maturity periods, interest rates, repayment schedules, and the purpose of borrowing. Here are the components of the structure of public debt:
Maturity: Debt can be short-term (repaid within a year) or long-term (repaid over several years). Different maturities suit different financing needs.
Interest Rates: Debt can carry fixed or variable interest rates. Fixed rates offer stability, while variable rates may change based on market conditions.
Principal Repayment Schedule: This outlines when and how the borrowed amount (principal) will be repaid, whether in equal installments or lump sums.
Amortization: It refers to the gradual repayment of the principal amount along with interest over the life of the debt.
Debt Service: This encompasses both principal repayments and interest payments over the life of the debt.
Debt-to-GDP Ratio: This ratio compares the total amount of debt to the country’s gross domestic product (GDP), indicating the country’s ability to manage its debt burden.
Brief Study Notes:
Sources of Public Debt:
Domestic Debt: Borrowed from within the country.
External Debt: Borrowed from foreign entities.
Multilateral and Bilateral Loans: From international organizations and governments.
Commercial Loans: Borrowed from banks and financial institutions.
Sovereign Bonds: Issued in international capital markets.
Structure of Public Debt:
Maturity: Short-term or long-term debt.
Interest Rates: Fixed or variable rates.
Principal Repayment: Schedule of principal repayment.
Amortization: Gradual repayment of principal and interest.
Debt Service: Combined principal and interest payments.
Debt-to-GDP Ratio: Debt relative to economic output.
Financial Strategy: Tailored to government needs and conditions.
Balancing Costs: Managing interest rates and repayment.
These study notes provide insights into the sources and structure of public debt. Students can explore how governments make decisions about borrowing sources and manage debt structure, analyze the impact of debt on fiscal policy, and discuss the challenges of balancing debt management with economic stability.

You may also like

Leave a Comment

Adblock Detected

Please support us by disabling your AdBlocker extension from your browsers for our website.