Definition of Public Debt

Someone has a debt when you ask someone for an amount of money with the intention of returning it. When this occurs there is a debt. The concept of debt is applicable to finance personal, a company or a country. Thus, when a state or any public administration They ask a third party for money to meet their commitments, the public debt is produced. As is logical, the debt that has been generated must be repaid within a certain period of time and under specific conditions.

It can be said that the public debt is an accounting entry, that is, the sum of the loans requested by any public body (for example, the state itself or a municipality concrete).

Difference between public debt and public deficit

These two concepts are often used synonymously, but they are different terms. Thus, it is understood by deficit the income statement, that is, the difference between the income and expenses. The difference between the two has to be related to the gross domestic product (GDP) of a country or the corresponding public entity. In this way, public debt refers to obligations (debts) with third parties, while the deficit is an entry in the income statement (income minus expenses).

Reasons for public indebtedness

A state must face a whole series of expenses and investments (payroll of civil servants, public services, investments in infrastructures, etc). In order to pay all the expenses of the state, a debt can be contracted, which acts as a source of financing. At the same time, to deal with debt, the state has income, basically the taxes it collects from citizens.

Types of public debt

There are two types of public debt: one real and one fictitious. Real public debt is that acquired by a small or large investor and fictitious debt is that which is purchased by a Bank national.

Public debt can be short, medium or long term. In the short term, this would be the case of treasury bills with a term of one year. A medium-term public debt is carried to term by means of government bonds (normally with a term between 3 and 5 years). In the long term, these would be the treasury's obligations (between 10 and 30 years).

Finally, it is necessary to differentiate between amortizable and perpetual debt. The first is that upon maturity the body that issued the debt undertakes periodically to pay the corresponding interest for the money received and at the end of the loan the main capital. Perpetual public debt is one in which there is no maturity of the debt, so the capital is never repaid fully (the borrower only charges interest and when the state wants to repay the debt, it must buy it at the price established by the market).

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