Effects of Internal Debts
Well-managed internal debts can provide the government with the necessary funds to invest in critical infrastructure projects, which can contribute to economic growth and development. The government’s borrowing activities, including internal debt issuance, can influence interest rates, affecting both private investment and consumer spending. Internal debt issuance can be a part of the government’s fiscal policy strategy. It allows the governments to manage budget deficits by financing spending when tax revenues fall short. Central Banks can use purchases or sales of government bonds as a tool to implement monetary policy. Buying bonds injects money into the economy, potentially lowering interest rates and stimulating economic activity.
Internal Debt | Types, Effects, Significance and Limitations
Internal Debt can be defined as money borrowed from inside the country from sources like Citizens, the Country’s banks, the country’s financial institutions, business houses, etc. As people and businesses sometimes need to borrow money to pay their expenses, the same goes for the government of any country. The government sometimes may need to borrow money from either inside the country or outside the country. The borrowed money is known as Debt, and the modes of borrowing money can be classified into two categories – External Debt and Internal Debt.