National Debt: Definition, Sources, Pros & Cons

What is National Debt?

National debt or public debt is the total debt a country owes to its citizens, governments of other countries or international financial organizations like the World Bank and International Monetary Fund (IMF).

The debt which a country owes its citizens is known as internal or domestic debt, while the debt owed to foreign governments or international financial organizations is known as external or foreign debt.

Sources of public borrowing:

• Internal sources include borrowing from individuals and financial institutions.
• External borrowing includes borrowing from international financial institutions like the IBRD and the ADB among others.

The Burden of public debt:

• The burden of domestic borrowing, though it rests on the citizens, is obviously lighter in the sense that it involves taking of money from one section of the community and putting it into the hands of another section of the community.
• The burden of external borrowing has a serious implication on the general welfare of the citizens because it involves parting of the nation’s hard earned foreign exchange without having anything in return for it.
• Debt Service – is the payment of interest on a debt, plus whatever instalments of the principal are due. The term, however, is most commonly used in connection with the National Debt.