Engineer's Finance

Public Debt is the also at times known as “Government Debt”. It is the money owed by any level of government whether it is the central, state or local government. Local government is our municipality, gram panchayat and the similar ones.

Government needs money to function. It needs to pay the salaries of its employees and also it needs to pay back the interest to banks and other nations from which it has loaned the money. it needs money for various needs and the list is quite exhaustive. Government raises money by various means. One such means is tax. It taxes its citizen so that the government can function quite effectively. However taxes do not suffice the government needs. Government to cope up with the needs starts borrowing money from the banks and other financial institutions. Such a borrowing is termed as Public Debt.

Public debt can be made up of all sorts of different types of debt. A great deal of public debt is external debt, which is money that is owed by the government to foreign lenders, either in the form of international organizations, other governments, or groups like sovereign wealth funds which invest in government bonds. Public debt is also made up of internal debt, where citizens and groups within the country lend the government money to continue operating. In some ways, this is a lot like lending to oneself, since ultimately the responsibility for public debt falls back on the very people lending money.

Governments with strong economies, who are well trusted in the world, are able to raise funds by issuing their own securities, usually called government bonds. Individuals, other nations, and groups buy these bonds, and the government promises to pay them back at a certain, usually fairly good, interest rate. Less robust governments, who do not have the trust from the world to be able to issue bonds and expect people to buy them, may turn to international institutions, or even normal banks, to give them loans, usually at less favorable rates.

Some people use the term public debt to refer not only to money directly owed, in the form of securities that can be collected on, by a government, but also on the pool of money owed in the form of services and payments promised. For example, pension payments the government may owe to its employees, or contracts the government has entered into but has not yet paid, may also be included in some calculations of public debt.