Tamil Nadu Board of Secondary EducationHSC Commerce Class 12

Structure of Public Finance - Public Debt




Public Debt :
Like a private individual, the government also needs to raise loans. In fact, raising debt is the most common activity of any government, because government expenditure generally exceeds government revenue. Public debt policy of the government plays an important role in public finance.
There are mainly two types of public debt. 
1) Internal Debt 
2) External Debt
1) Internal Debt :
When a government borrows from its citizens, banks, central bank, financial institutions, business houses etc. within the country, it is known as internal debt.
2) External Debt :
When a government borrows from foreign governments, foreign banks or institutions, international organizations like International Monetary Fund, World Bank etc., it is known as external debt. 

Internal Debt External Debt
Raised within the economy. Raised outside the economy.
Voluntary or compulsory in nature. Voluntary in nature.
Use of domestic currency. Use of foreign currency.
 Less complex for management. More complex for management.
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