Types of public debt, Managerial Economics

Types of Public Debt

Public debts can be classified according to the purpose for which the money was borrowed into;

a.           Reproductive Debt:  where a loan has been obtained to enable a government to purchase some real assets, or Deadweight Debt where the debt is not covered by any real assets.

b.          National Debt:  can also be classified into marketable and non-marketable debt.  Marketable debt can be bought and sold on the money market or stock exchange.  It can be divided into two types, short and long-term.  The former consists of Treasury Bills and the latter of Government Bonds (Stocks).  Non-marketable debt cannot be sold on the money market or stock exchange and includes such items as National Savings certificates, various types of Bonds, and deposits at the National Savings Bank.

Finally, National debt can also be classified into Domestic and external debt.  Domestic public debt is owed by the state mainly to its citizens or to domestic institutions such as commercial companies, etc.  It includes interest payments on domestic institutions such as commercial companies, etc.  Interest payments on domestic debt are raised from the taxation of the community.  Such interest payments are transfer payments since the total wealth is not affected, irrespective of the size of the debt.  External debt is owed to foreign institutions and governments.  Kenya's external debt is incurred with two types of lenders:

i. Bilateral Lenders

This is official lending between two governments.  Chief among the lenders of Kenya in this category are the U. S. A., Britain and Japan.

ii.  Multi-lateral Lenders

This is lending from organizations comprising of many governments.  By for the leading lender is the World Bank (IBRD) - with two main lending affiliate bodies - the International Development Association (IDA) - the international Finance Corporation (IFC); and the International Monetary Fund, and since 1983, the African Development Bank (ABD).

Posted Date: 11/30/2012 4:15:05 AM | Location : United States

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