What is meant by Public Debt?

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Accepted Answer

Public Debt refers to the total borrowings of the government — raised from its own citizens and institutions (internal debt) as well as from foreign governments and international institutions such as the World Bank and IMF (external debt) — undertaken chiefly to bridge the gap between its expenditure and its revenue (financing a budget deficit) or to fund specific capital/development projects. Debt is also classified as productive (financing income-generating capital projects) or unproductive (financing …

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Q. Distinguish between internal debt and external debt.

›Reveal solution

Internal debt is borrowed from within the country in home currency, so repayment only redistributes money inside the nation; external debt is borrowed from abroad in foreign currency, so repayment sends real resources out of the country.

Distinction between Internal Debt and External Debt

Basis	Internal Debt	External Debt
Source of borrowing	Raised from within the country (public, banks, RBI, institutions)	Raised from outside the country (foreign governments, IMF, World Bank, foreign lenders)
Currency	Borrowed and repaid in domestic currency	Borrowed and usually repaid in foreign currency
Effect on national resources	Mere internal transfer; total resources of the nation are unchanged	Brings in extra resources initially, but repayment causes an outflow of resources

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CBSE 2024Set ANNUAL2 marks

Q. Distinguish between internal debt and external debt.

›Reveal solution

Public debt is classified by its source into internal debt (raised at home) and external debt (raised from abroad); they differ in the lenders, the currency and the burden on the economy.

Basis	Internal Debt	External Debt
Source	Raised within the country — public, banks, financial institutions, RBI	Raised from outside — foreign governments, IMF, World Bank, foreign investors
Currency	Raised and repaid in domestic currency	Usually raised and repaid in foreign currency
Movement of resources	No net inflow; only a transfer among residents of the same country	Brings a real inflow of resources from abroad initially
Burden	Repayment stays within the country	Repayment causes an outflow of resources to other countries

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CBSE 2022Set ANNUAL2 marks

Q. Distinguish between internal debt and external debt.

›Reveal solution

Internal debt is raised within the country; external debt is raised from abroad and must be repaid in foreign currency.

Public debt is government borrowing, classified by where the loan comes from.

Point	Internal Debt	External Debt
Source	Raised from within the country	Raised from foreign countries or institutions
Lenders	Citizens, commercial banks, RBI, financial institutions	Foreign governments, IMF, World Bank, foreign banks
Currency	Raised and repaid in domestic currency	Involves foreign exchange for both receipt and repayment

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Q.What is meant by Public Debt?

Concept understanding — Public Debt

Q.What is meant by Public Debt?

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