What is National Debt?

The national debt is the total sum of money which is owed by the central government. This debt is made out of internal when there’s debt owned to national lenders and of course external owning money to foreign creditors, these debts come along as the government finances its expenditures. The national debt is usually divided in to three main categories: floating, funded and unfunded debt. Floating debt are short term borrowings like treasury bills and borrowing money from the central bank.

When we’re talking about funded debt then this occur when short term debts are turned in to long term ones. Unfunded debt stands for all the national saving certificates, saving bonds and premium bonds which are paid in foreign exchange. It’s important to know that the unfunded debts play a crucial role in the country’s balance of payments. National debt has an important role in a country’s financial system as government securities form a part of the reserves of its financial institutions.