Hi friends, in today’s article we are going to know about the sources of public debt, economic discussion. So let’s discuss in details.
Table of Contents
Sources of Public Debt
Public debt refers to the loans raised by a govt. within the country or outside the country. Every govt. like individuals has to borrow when its expenditure exceeds its revenue. There are various sources of public debt i.e. the individual or institutions purchasing govt. bonds or landing in other forms the following the most important sources of public borrowing which can be divided into internal and external sources.
Internal Sources of Public Debt
- Private Individuals
- Financial Institution (non banking)
- Commercial banks
- Central banks
- Unfounded debt
External Sources of Public Debt
- Foreign govt.
- Foreign individuals.
- Foreign banks and other non-financial institution.
- International financial institution.
Private individual purchase govt bonds mainly because of security or tax concessions attached to them when they purchase bonds, the diversion of funds to govt use doesn’t normally reduce private company or investment because generally bonds are purchased out of funds which would be used to purchase other securities.
The second important source of public borrowing are the non banking financial institutions like LIC or UTI which are the back purchases of govt. bonds. Both individuals and non banking financial institutions refers govt. bonds mainly because of security they provide and because they are highly marketable and negotiable.
The third source of public borrowing are the commercial banks. These banks purchase of bonds doesn’t reduce their loans and advances.
The most expansionary source of public debt is the central banking system. Central bank also provide purchases govt. bonds through creation of credit. Again this credit may be great help for commercial banks in creating additional purchasing power.
Small saving and unfounded debt are two other internal sources of borrowing. The govt has also various external sources of borrowing.
These funds are generally used to important various materials and manpower required to develop the country agriculturally and industrially. The bonds are floated for financing construction projects these bonds may be purchased by private individuals or commercial institutions or govt of the foreign countries.
Apart from these sources, there are a number of international institution like IMF. IBRD, IFCI, world bank etc. Which after loans for short term and long term development purposes.
The developing countries facing temporary BOP difficulties Yet short term loans which long term loans are received for long term development project. The magnitude of external borrowing of the developing countries has increasing become vast in the recent years.
Conclusion
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