Sources of Public Debt

Sources of Public Debt

1.    Individuals

Government can raise fund by selling its bond to the general public. Bonds will carry interest rate which would be payable to individual at maturity along with principal amount.

2.    Domestic Bank Borrowing

Bank borrowing is another source of debt for the governments. This source is used more frequently by the government. Bank borrowing can be further classified into two categories i.e. borrowing from commercial banks and central bank.

3.    Borrowing from Non Financial Institutions

Government can also take debt from the non financial institutions mainly controlled by the government i.e. postal services, national savings etc. This financial institution has a lot of surplus fund (more than their liquid requirement), which may be advance to Government.

4.    International Borrowing

Government can also take debt from the international agencies like International Monterey Fund & World Bank. International debt is comparatively difficult to arrange than domestic debt, because International agency requires some commitment from the government before releasing debt.