Public debt refers to the borrowing by a country either from within the country or from abroad, from pvt. individuals or banking institutions etc. It may borrow from IMF or IBRD. Govt. is forced to borrow when its expenditure exceeds its revenue. Public debet may be classified into external debt & internal debt.
Differences
- Internal debt is the debt raised by the govt. from within the country by the sale of bonds and securities to banks, financial institutions, etc.
External debt is the debt taken from foreigners, foreign govt.s or foreign financial institutions.
- When internal debt is raised money is transferred from lenders to the govt. The govt. uses it for making payments to its servants, etc. The debt is considered beneficial if the amount borrowed amount is used for the benefit of the poor & betterment of the society.
When the lender country buys goods from the debtor country with the debt amount repaid, it causes real burden. This reduces the economic welfare in the debtor country.
Thus external debt is of greater burden than the internal debt.
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