- MEANING OF PUBLIC DEBT
When any govt prepares its budget it has to show its revenues on the one side and expenditures on the other side. The govt revenues consists of tax as well as non-tax sources. In so many situations, the govt revenues fall short of govt expenditures. Therefore, the govt has to discover the sources of revenues. In such additional sources the public debt plays an important role. These loans are raised by the govt by selling its bonds to the public, or selling govt securities to commercial banks through central bank, or against its securities from central bank and from foreign sources.
It is commonly believed that the taxes, surcharges and fees are the sources of govt. In the same way, public debt is also a source of govt revenues. This can be analyzed from govt budgets of Pakistan. As in the federal budget of 2009-10 the govt planned to borrow Rs.200 billion from banks which has been accorded as govt revenues. It is said in this respect that as the amounts collected through taxes represent govt revenues because it is not necessary for govt to provide services against charging taxes. In the same way the amounts raised through loans also represent govt income. But in real sense it is not so as when govt borrows it also has to repay the principal amount along with interest. In such situation the public debt can not represent govt income. The debt is in fact debt, it has to be rapid. There is a written agreement regarding the repayment of the loan between the debtor (govt) and the creditor (public banks and foreign institutions) at a certain interest along with principal amount.
- CLASSIFICATION OF PUBLIC DEBT
The public differ from each other. They may differ from markets, from rate of interest, from the conditions of re-payment and from their use. Thus, the public debt can be classified on the basis of different measures. They are as :
- Productive Vs Unproductive debt
The debt which is spent on productive purposes is called productive loan. The amount of such loans are spent on those projects which yield the revenues for the govt. With the help of such revenues the cost of loans I.e, interest can be paid. It means that with productive loans the productive efficiency of the economy increases. As the case of construction of railway system, development of irrigation system and construction of roads etc. With the help of borrowed money represent the use of productive debt. “While” the loans which are used to make unproductive expenditures are called unproductive debt. These debts do not lead to increase the productive capacity of the economy; they do not raise any revenue for the govt and these loans are burden for the economy. If govt borrows in order to assist the flood affected people or borrows for defense purposes -they all represent the unproductive debt.
- Volunteer Debt Vs Forced Debt
The debt which is given by public and banks to govt voluntarily is called volunteer debt. “As“ if govt issues the bonds against which it pays the interest. Thus, the loan given by public and bank against purchasing the bonds represents volunteer debt. On the other side if govt gets the loan. This type of loan is raised during emergencies and wars. “When” govt is in severe need of funds it can force the people to provide loans. Normally, the loans are volunteer and the loans can not be asked forcefully without the consent of the people. However, the govt can force the people for debt during emergencies.
- Funded Debt Vs Unfunded Debt
Funded debt is a public loan for whose repayment govt sets-up a separate fund. Every year govt deposits a specific amount in this fund. When the time period of the loan is matured, its repayment is made by govt through this fund. On the other hand, the unfunded debt is the debt for whose re-payment govt does not establish any special fund. The interest against such loans is paid through the daily routine income of the govt. “Whenever”, the govt has to repay the principal amount it raises new debt from the market. The funded debt is also known as long term debt of Floating Debt. “While” the unfunded debt has the period of one year. The treasury bills of the govt come under the category of non-funded loans as their maturity period is from 3 months to 6 months. They never last for more than a year. The non-fund loans are raised to meet the temporary gaps between income and expenditures of first quarter that exceeds the govt expenditures, then to meet the expenditures of first quarter whats over loans are raised are concerned with non-debts as in the next quarter these are returned. That such like loans are raised in the top that after some time the resources will be available to the govt and the payments or such debts could be made.
- Redeemable Debt Vs Irredeemable Debt
Redeemable debt is the debt whose principal amount is paid-out after the maturity of its time period. It means that the interest against such loan is paid at the determined time periods while principle amount is paid once the time period of the debt is over. For the repayment of such loans, govt set-up a Sinking Fund. On the other hand, the irredeemable debt is the debt whose principal amount is never paid by time intervals. In real life most of the loans are redeemable, where the irredeemable loans are few.
- Internal Debt Vs External Debt
When a country raises debt from its internal sources like people, commercial banks and central bank such debt is called internal debt. But if a country borrows from external sources like foreigners, foreign financial Institution, foreign banks are foreign govt such debt is called external debt. As a govt of Pakistan borrows from public through post-office savings schemes, national saving schemes or by selling govt securities as well as borrows from commercial banks and central bank against bonds and treasury bills-such all represent the domestic debt. On the other hand, if govt borrows through international capital market, world bank and international Monetary Funds-such all represent the external debt.