power projects. It is not a burden for the governmentas well as taxpayers.Non-productive: This type of debt is not a productivedebt which means it does not add productivity and actsas a burden. For e.g. war and floods.Redeemable:Government promises to pay-off thisdebt in the future. It is inter-paid regularly and theprincipal amount is paid in the future.Non-redeemable:This type of debt is rarely found inwhich the principal amount is not returned but theinterest amount is paid regularly.Funded debt:In this type of debt, the governmentestablishes a separate fund to pay off the loan and atthe time of maturity the debt is paid off.Non-funded debt:No separate fund is created so as topay off this type of loan. In this type, interest is paidfrom income or additional loans.Reasons for taking Public Debt: 1. To meet the budgetary deficit. 3. To provide foreign exchange. 2. To finance war funding. 4. To check recession and unforeseen emergencies.
Refunding 1. Budgetary Surplus: The government purchases its own bonds and securities. 2. Terminal annuities: Pays the debt in equal installment and returns the whole amount at the time of maturity. 3. Export surplus: The loan is taken by the government on industries which manufacture the “export only goods”. This also helps the country to increase the employment level and proper utilization of resources. 4. Statutory reduction in the rate of interest: The government decides to lower the rate of interest. Examples: When countries are unable to pay the debt, they come under the sovereign debt category. Countries are unable to pay generally when the new government takes the power and refuses to pay or when the crises in the country are such that they do not have enough money to pay. The history of sovereign debts runs back to 1800 when Portugal defaulted for 4 times followed by Greece and Spain who have defaulted for 5 and 6 times respectively.
You've reached the end of your free preview.
Want to read all 3 pages?