Public debt refers to the total outstanding debt obligations or accumulated borrowing of the government. Public debt is usually divided into two: domestic public debt, which is owed by the government to its citizens, and external public debt, which is the total money owed by the government to foreign governments and residents. A government will resort to borrowing to finance its fiscal deficits.
Sources of Public Debt
- Internal Sources: Public debt can be procured within the country through the purchase of government securities by commercial and merchant banks, central bank, and non-bank private individuals and financial institutions who subscribe to instruments such as treasury securities bonds and development stocks.
- External Sources: Most countries have contracted external public debt through the following sources:
- London Club of Creditors: These are mainly uninsured and unguaranteed debts extended by commercial banks in some industrialised countries to nationals of debtor nations.
- Paris Club of Creditors: It represents only government guaranteed creditors. Membership includes the United States of America, United Kingdom, Federal Republic of Germany, France and Ghana, who guarantee the export activities of their nationals through their Official Export Credit Agencies.
- Multilateral Creditors: These are international institutions funded by member nations. They include the World Bank Group, International Monetary Fund (IMF), African development Bank (ADB) Group, International Fund for Agricultural Development (IFAD), etc. These institutions provide credit for development purposes, balance of payments support and private ventures.
- Bilateral Creditors: A bilateral credit is provided by one government to another government. Bilateral credits are usually meant for developmental projects in the recipient country.