View source for Government debt

{{Short description|Total amount of debt owed to lenders by a government/state}}
{{hatnote|Not to be confused with [[external debt]] (or foreign debt), a country's liabilities owed to nonresidents by residents.}}{{Lead extra info|date=March 2025}}
{{public finance}}
A country's gross '''government debt''' (also called '''public debt''' or '''sovereign debt'''<ref>[http://lexicon.ft.com/Term?term=sovereign-debt "FT Lexicon"]{{spaced ndash}} ''The [[Financial Times]]''</ref>) is the financial liabilities of the government sector.<ref name="gfsm" />{{rp|81}} Changes in government debt over time reflect primarily borrowing due to past [[government deficit]]s.<ref name="oecdd">{{ cite web | url=https://data.oecd.org/gga/general-government-debt.htm | last=OECD Data | website=OECD.org | title=OECD General government debt }}</ref> A deficit occurs when a government's expenditures exceed revenues.<ref name="oecdf">{{cite web | url= https://data.oecd.org/gga/general-government-deficit.htm | title=General government deficit | website=OECD.org | last=OECD Data }}</ref><ref name="gfsm"/>{{rp|79–82}} Government debt may be owed to domestic residents, as well as to foreign residents. If owed to foreign residents, that quantity is included in the country's [[external debt]].<ref>{{cite web | title=External Debt Statistics: Guide for Compilers and Users | pages=41–43 | url= https://www.imf.org/external/np/sta/ed/ed.htm | author=International Monetary Fund}}</ref>

In 2020, the value of government debt worldwide was US$87.4 trillion, or 99% measured as a share of [[gross domestic product]] (GDP).<ref name="Gaspar">{{cite web | last1=Gaspar | first1=Vitor | last2=Medas | first2=Paulo | last3=Perrelli | first3=Roberto | title= Global Debt Reaches a Record $226 Trillion | date=15 December 2021 | url=https://blogs.imf.org/2021/12/15/global-debt-reaches-a-record-226-trillion/ | website=IMF Blog }}</ref> Government debt accounted for almost 40% of all debt (which includes corporate and household debt), the highest share since the 1960s.<ref name="Gaspar"/> The rise in government debt since 2007 is largely attributable to stimulus measures during the [[Great Recession]], and the [[COVID-19 recession]].<ref name="Gaspar"/>

Governments may take on debt when the government's spending desires do not match government revenue flows. Taking debt can allow governments to conduct [[fiscal policy]] more effectively, avoid tax increases, and making investments with long-term returns.<ref name="what">{{Cite web |last1=Mosley |first1=Layna |last2=Rosendorff |first2=Peter |date=2025 |title=What is sovereign debt, and why does it matter? |url=https://goodauthority.org/news/good-to-know-sovereign-debt/ |website=Good Authority |language=en-US}}</ref> The ability of government to issue debt has been central to [[state formation]] and to [[state-building|state building]].<ref name="Eichengreen-2021" /><ref name="Stasavage-2003" /> Public debt has been linked to the rise of [[democracy]], private [[financial market]]s, and modern [[economic growth]].<ref name="Eichengreen-2021" /><ref name="Stasavage-2003" />

Actors that issue [[sovereign credit]] include private investors, commercial banks, [[multilateral development banks]] (such as the [[World Bank]]) and other governments.<ref name="what" /> Low-income, highly indebted states tend to attain loans from multilateral development banks and other governments because they are considered too risky for private investors.<ref name="what" /> Higher-income states tend to issue [[sovereign bonds]], which are subsequently traded by investors in secondary markets.<ref name="what" /> [[Credit rating agency|Ratings agencies]] (e.g. Moody's, Standard & Poor's) issue ratings that measure the credit-worthiness of governments, which may in turn affect the value of sovereign bonds in secondary markets.<ref name="what" />

==Measurement==
[[File:Government debt in percent of GDP IMF.svg|thumb|upright=1.4|Government [[debt-to-GDP ratio]] in % (2024, IMF)
{{Col-begin}}
{{Col-break}}
{{legend|#d73127|>100%}}
{{legend|#f56e43|>75–100%}}
{{legend|#fdae61|>50–75%}}
{{Col-break}}
{{legend|#fee08a|>25–50%}}
{{legend|#ffffbf|0–25%}}
{{legend|#cccccc|no data}}
{{Col-end}}]]
Government debt is typically measured as the ''gross debt'' of the ''general government'' sector that is in the form of liabilities that are debt instruments.<ref name="gfsm" />{{rp|207}} A ''debt instrument'' is a financial claim that requires [[interest expense|payment of interest]] and/or principal by the debtor to the creditor in the future. Examples include debt securities (such as [[Bond (finance)|bonds]] and bills), loans, and government employee [[pension]] obligations.<ref name="gfsm">{{cite web | last=International Monetary Fund | year=2014 | title=Government Finance Statistics Manual 2014 | url=https://www.imf.org/external/Pubs/FT/GFS/Manual/2014/gfsfinal.pdf }}</ref>{{rp|207}}

International comparisons usually focus on ''general government'' debt because the level of government responsible for programs (for example, health care) differs across countries and the general government comprises central, state, provincial, regional, local governments, and social security funds.<ref name="gfsm" />{{rp|18, s2.58, s2.59}} The debt of public corporations (such as post offices that provide goods or services on a market basis) is not included in general government debt, following the [[International Monetary Fund]]'s ''Government Finance Statistics Manual 2014'' (''GFSM''), which describes recommended methodologies for compiling debt statistics to ensure international comparability.<ref name="gfsm" />{{rp|33, s2.127}}

The ''gross debt'' of the general government sector is the total liabilities that are debt instruments. An alternative debt measure is ''net debt'', which is gross debt minus financial assets in the form of debt instruments.<ref name="gfsm" />{{rp|208, s7.243}} Net debt estimates are not always available since some government assets may be difficult to value, such as loans made at concessional rates.<ref name="gfsm"/>{{rp|208–209, s7.246}}

Debt can be measured at ''market value'' or ''nominal value''. As a general rule, the ''GFSM'' says debt should be valued at ''market value'', the value at which the asset could be exchanged for cash.<ref name="gfsm"/>{{rp|55, s3.107}} However, the ''nominal value'' is useful for a debt-issuing government, as it is the amount that the debtor owes to the creditor.<ref name="gfsm"/>{{rp|191, ft28}} If market and nominal values are not available, ''face value'' (the undiscounted amount of principal to be repaid at maturity)<ref name="gfsm"/>{{rp|56}} is used.<ref name="gfsm"/>{{rp|208, s7.238}}

A country's general government [[debt-to-GDP ratio]] is an indicator of its debt burden since [[GDP]] measures the value of goods and services produced by an economy during a period (usually a year). As well, debt measured as a percentage of GDP facilitates comparisons across countries of different size. The [[OECD]] views the general government debt-to-GDP ratio as a key indicator of the sustainability of government finance.<ref name="oecdd"/>

==Causes of government debt accumulation==
An important reason governments borrow is to act as an economic "shock absorber". For example, deficit financing can be used to maintain government services during a recession when tax revenues fall and expenses rise for say unemployment benefits.<ref name ="sndo">{{cite web | title=What governs the size of central government debt? | author=Swedish National Debt Office | url=https://www.riksgalden.se/fi/our-operations/central-government-debt/what-governs-the-size-of-central-government-debt/ }}</ref> Government debt created to cover costs from major shock events can be particularly beneficial. Such events would include
* a major war, like [[World War II]];
* a public health emergency like the [[COVID-19 recession]]; or
* a severe economic downturn as with the [[Great Recession]].<ref name="eichengreen">{{cite web | title=IMF Podcasts, Barry Eichengreen: In Defense of Public Debt | date=21 December 2021 | publisher=International Monetary Fund | url= https://www.imf.org/en/News/Podcasts/All-Podcasts/2021/12/20/Eichengreen-Wellisz-debt }}</ref>

In the absence of debt financing, when revenues decline during a downturn, a government would need to raise taxes or reduce spending, which would exacerbate the negative event.

While government borrowing may be desirable at times, a "deficits bias" can arise when there is disagreement among groups in society over [[government spending]].<ref name="ad">{{cite journal | last1=Alesina | first1=Alberto | last2=Drazen | first2=Allan | title=Why Are Stabilizations Delayed? | journal=The American Economic Review | volume=81 | issue=5 | date=December 1991 | publisher=American Economic Association | pages=1170–1188 }}</ref><ref name="at">{{cite journal | last1=Alesina | first1=Alberto | last2=Tabellini | first2=Guido | title=A Positive Theory of Fiscal Deficits and Government Debt | journal=Review of Economic Studies | date=1990 | volume=57 | issue=3 | pages=403–414| doi=10.2307/2298021 | jstor=2298021 }}</ref> Increasing government debt can be described as a [[tragedy of the commons]], where individual politicians are [[incentive|incentivised]] to increase their popularity with [[deficit spending]], but if politicians follow this incentive then the public [[debt-to-GDP ratio]] grows until [[sovereign default]].<ref>{{Cite journal |last=Yared |first=Pierre |date=2019 |title=Rising Government Debt: Causes and Solutions for a Decades-Old Trend |url=https://www.aeaweb.org/articles?id=10.1257/jep.33.2.115 |journal=Journal of Economic Perspectives |language=en |volume=33 |issue=2 |pages=125–126 |doi=10.1257/jep.33.2.115 |issn=0895-3309 |quote=Shortsighted policymaking can also result from a version of the tragedy of the commons in which political parties acting independently engage in excessive targeted government spending since they do not internalize the shared financing costs of government debt. " and "The tragedy of the commons predicts that countries with a large number of constituencies or deep disagreements in fiscal priorities across constituencies will incur larger government deficits, resulting in faster government debt accumulation.|doi-access=free }}</ref> To counter deficit bias, many countries have adopted [[balanced budget amendment|balanced budget rules]] or restrictions on government debt. Examples include the "debt anchor"<ref name="sndo"/> in Sweden; a [[Debt brake (Germany)|"debt brake" in Germany]] and [[Federal budget of Switzerland#Issues and debates|Switzerland]]; and the [[European Union]]'s [[Stability and Growth Pact]] agreement to maintain a general government gross debt of no more than 60% of GDP.<ref>{{cite web | title=Consolidated version of the Treaty on European Union – PROTOCOLS – Protocol (No 12) on the excessive deficit procedure | url=http://data.europa.eu/eli/treaty/teu_2008/pro_12/oj }}</ref><ref>{{cite web | url=https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/stability-and-growth-pact/applying-rules-stability-and-growth-pact_en | title=Applying the rules of the stability and growth pact}}</ref>

==Historic benchmarks==
[[File:Bank of England Charter sealing 1694.jpg|thumb|left|upright=0.9|The sealing of the Bank of England Charter (1694)]]
The ability of government to issue debt has been central to [[state formation]] and to [[state-building|state building]].<ref name="Eichengreen-2021">{{Cite book|last1= Eichengreen|first1= Barry J.|url= https://books.google.com/books?id=r4JszgEACAAJ|title=In Defense of Public Debt|last2=El-Ganainy|first2= Asmaa|last3= Esteves|first3=Rui|last4=Mitchener|first4=Kris James|date=2021|publisher=Oxford University Press |isbn= 978-0-19-757792-9|language=en}}</ref><ref name="Stasavage-2003">{{Cite book|author1-link=David Stasavage|last= Stasavage|first= David |url= https://www.cambridge.org/core/books/public-debt-and-the-birth-of-the-democratic-state/9995D18B9CC015BA69C37133E44DDE23|title=Public Debt and the Birth of the Democratic State: France and Great Britain 1688–1789|date= 2003|publisher= Cambridge University Press|isbn= 978-0-521-80967-2|doi=10.1017/cbo9780511510557}}</ref> Public debt has been linked to the rise of [[democracy]], private [[financial market]]s, and modern [[economic growth]].<ref name="Eichengreen-2021" /><ref name="Stasavage-2003" /> For example, in the 17th and 18th centuries England established a parliament that included creditors, as part of a larger coalition, whose authorization had to be secured for the country to borrow or raise taxes. This institution improved England's ability to borrow because lenders were more willing to hold the debt of a state with democratic institutions that would support debt repayment, versus a state where the monarch could not be compelled to repay debt.<ref name="Eichengreen-2021" /><ref name="Stasavage-2003" />

As public debt came to be recognized as a safe and liquid investment, it could be used as collateral for private loans. This created a complementarity between the development of public debt markets and private financial markets.<ref name="Eichengreen-2021"/> Government borrowing to finance public goods, such as urban infrastructure, has been associated with modern [[economic growth]].<ref name="Eichengreen-2021"/>{{rp|6}}

Written records point to public borrowing as long as two thousand years ago when Greek city-states such as Syracuse borrowed from their citizens.<ref name="Eichengreen-2021"/>{{rp|10–16}} But the founding of the [[Bank of England]] in 1694 revolutionised public finance and put an end to defaults such as the ''[[Great Stop of the Exchequer]]'' of 1672, when [[Charles II of England|Charles II]] had suspended payments on his bills. From then on, the British Government would never fail to repay its creditors.<ref>{{cite book|author=Ferguson, Niall|title=The Ascent of Money: A Financial History of the World|publisher=Penguin Books, London|year=2008|page=76|url=https://books.google.com/books?id=HVVPpwAACAAJ|isbn=9780718194000}}</ref> In the following centuries, other countries in Europe and later around the world adopted similar financial institutions to manage their government debt.
[[File:National-Debt-Gillray.jpeg|thumb|upright=1.15|''A new way to pay the National Debt'', [[James Gillray]], 1786. [[George III of the United Kingdom|King George III]], with William Pitt handing him another moneybag.|alt=Centre: George III, drawn as a paunchy man with pockets bulging with gold coins, receives a wheel-barrow filled with the money-bags from William Pitt, whose pockets also overflow with coin. To the left, a quadriplegic veteran begs on the street. To the right, George, Prince of Wales, is depicted dressed in rags.]]
In 1815, at the end of the [[Napoleonic Wars]], [[British government debt]] reached a peak of more than 200% of GDP,<ref name="public spending">[http://www.ukpublicspending.co.uk/uk_national_debt_chart.html UK public spending] Retrieved September 2011</ref> nearly 887 million pounds sterling.<ref name=EB1911>{{cite EB1911 |wstitle=National Debt |volume=19 |page=269}}</ref> The debt was paid off over 90 years by running [[Government budget balance#Primary balance|primary budget surpluses]] (that is, revenues were greater than spending after payment of interest).<ref name="eichengreen"/>

In 1900, the country with the most total debt was France (£1,086,215,525), followed by Russia (£656,000,000) then the United Kingdom (£628,978,782);<ref name=EB1911/> on a per-capita basis, the highest-debt countries were New Zealand (£58 12s. per person), the Australian colonies (£52 13s.) and Portugal (£35).<ref name=EB1911/>

In 2018, global government debt reached the equivalent of $66 trillion, or about 80% of global GDP,<ref>{{cite news |title=Government debt hits record $66 trillion, 80% of global GDP, Fitch says |url=https://www.cnbc.com/2019/01/23/government-debt-tab-hits-66-trillion-80percent-of-global-gdp-fitch-says.html |work=CNBC |date=23 January 2019}}</ref> and by 2020, global government debt reached $87US trillion, or 99% of global GDP.<ref name="Gaspar"/> The COVID-19 pandemic caused public debt to soar in 2020, particularly in advanced economies that put in place sweeping fiscal measures.<ref name="Gaspar"/>

==Impacts of government debt==
[[File:Usa national debt 20 April 2012.JPG|thumb|right|upright=1.35|[[National Debt Clock]] outside the [[IRS]] office in [[New York City|NYC]], April 20, 2012]]
Government debt accumulation may lead to a rising interest rate,<ref name="sndo"/> which can crowd out private investment as governments compete with private firms for limited investment funds. Some evidence suggests growth rates are lower for countries with government debt greater than around 80 percent of GDP.<ref name="sndo"/><ref name="rugy">{{cite journal | title=Debt and Growth: A Decade of Studies | first1=Veronique | last1=de Rugy | first2=Jack | last2=Salmon | date=April 2020 | journal=Mercatus Center | publisher=George Mason University | doi=10.2139/ssrn.3690510 | s2cid=233762964 | url=https://dx.doi.org/10.2139/ssrn.3690510| url-access=subscription | doi-access=free }}</ref> A World Bank Group report that analyzed debt levels of 100 developed and developing countries from 1980 to 2008 found that debt-to-GDP ratios above 77% for developed countries (64% for developing countries) reduced future annual economic growth by 0.017 (0.02 for developing countries) percentage points for each percentage point of debt above the threshold.<ref name=WB_2013 >{{ Cite journal | url=https://elibrary.worldbank.org/doi/abs/10.1596/1813-9450-5391 | last1=Grennes | first1=Thomas | last2=Caner | first2=Mehmet | last3=Koehler-Geib | first3=Fritzi | title=Finding the Tipping Point -- when Sovereign Debt Turns Bad | journal=Policy Research Working Papers | date=2013-06-22 | publisher=The World Bank | doi=10.1596/1813-9450-5391 | hdl=10986/3875 | access-date=2020-09-10 | quote=The present study addresses these questions with the help of threshold estimations based on a yearly dataset of 101 developing and developed economies spanning a time period from 1980 to 2008. The estimations establish a threshold of 77 percent public debt-to-GDP ratio. If debt is above this threshold, each additional percentage point of debt costs 0.017 percentage points of annual real growth. The effect is even more pronounced in emerging markets where the threshold is 64 percent debt-to-GDP ratio. In these countries, the loss in annual real growth with each additional percentage point in public debt amounts to 0.02 percentage points. | hdl-access=free }}</ref><ref name=WP_1 >{{ cite news | url=https://www.washingtonpost.com/politics/2020/09/09/mnunchins-claim-pre-covid-economy-would-pay-down-debt-over-time/ | title=Mnuchin's claim that the pre-pandemic economy 'would pay down debt over time' | last=Kessler | first=Glenn | newspaper=[[The Washington Post]] | date=2020-09-09 | access-date=2020-09-10 | quote=The debt-to-GDP ratio is considered a good guide to a country's ability to pay off its debts. The World Bank has calculated that 77 percent public debt-to-GDP is about the highest a developed country should have before debt begins to hamper economic growth. }}</ref>

Excessive debt levels may make governments more vulnerable to a [[debt crisis]], where a country is unable to make payments on its debt, and it cannot borrow more.<ref name="sndo"/> Crises can be costly, particularly if a debt crisis is combined with a financial/banking crisis which leads to economy-wide [[deleveraging]]. As firms sell assets to pay off debt, asset prices fall which risks an even greater fall in incomes, further depressing tax revenue and requiring governments to drastically cut government services.<ref>{{cite journal | first=Adrian | last=Blundell-Wignall | title=Solving the Financial and Sovereign Debt Crisis in Europe | journal=OECD Journal: Financial Market Trends | date=2012 | volume=2011 | issue=2 | pages=201–224 | doi=10.1787/fmt-2011-5k9cswmzsdwj | url= https://www.oecd.org/finance/financial-markets/49481502.pdf }}</ref> Examples of debt crises include the [[Latin American debt crisis]] of the early 1980s, and [[Argentine debt restructuring|Argentina's debt crisis in 2001]]. To help avoid a crisis, governments may want to maintain a "fiscal breathing space". Historical experience shows that room to double the level of government debt when needed is an approximate guide.<ref name="sndo"/>

Government debt is built up by borrowing when expenditure exceeds revenue, so government debt generally creates an ''intergenerational transfer.'' This is because the beneficiaries of the government's expenditure on goods and services when the debt is created typically differ from the individuals responsible for repaying the debt in the future.

An alternative view of government debt, sometimes called the [[Ricardian equivalence]] proposition, is that government debt has no impact on the economy if individuals are altruistic and internalize the impact of the debt on future generations.<ref>{{cite journal | first=James M. | last=Buchanan | url=https://www.journals.uchicago.edu/doi/10.1086/260436 | title=Barro on the Ricardian Equivalence Theorem | journal=Journal of Political Economy | publisher=The University of Chicago Press Journals | date=1976 | pages=337–342 | volume=84 | issue=2| doi=10.1086/260436 | s2cid=153956574 | url-access=subscription }}</ref> According to this proposition, while the quantity of government purchases affects the economy, debt financing will have the same impact as tax financing because with debt financing individuals will anticipate the future taxes needed to repay the debt, and so increase their saving and bequests by the amount of government debt. Such higher individual saving means, for example, that private consumption falls one-for-one with the rise in government debt, so the interest rate would not rise and private investment is not crowded out.

In public discourse, politicians and commentators frequently draw parallels between [[Government-Household analogy|government debt and household debt]], as they argue that a government taking on debt is akin to a household taking on debt. However, economists generally challenge this analogy, as the functions and constraints of governments and households are vastly dissimilar.<ref>{{Cite journal |last=Vickrey |first=W. |date=1998 |title=Fifteen fatal fallacies of financial fundamentalism: A disquisition on demand-side economics |journal=Proceedings of the National Academy of Sciences |language=en |volume=95 |issue=3 |pages=1340–1347 |bibcode=1998PNAS...95.1340V |doi=10.1073/pnas.95.3.1340 |issn=0027-8424 |pmc=18763 |pmid=9448333 |doi-access=free}}</ref><ref>{{Cite news |last=Aldrick |first=Philip |title=BBC 'misled viewers' on scale of national debt |url=https://www.thetimes.com/article/bbc-misled-viewers-on-scale-of-national-debt-ckvkcwc7j |access-date=2021-07-19 |newspaper=[[The Times]] |language=en |issn=0140-0460}}</ref><ref>{{Cite web |last=Krugman |first=Paul |date=2015 |title=The austerity delusion |url=https://www.theguardian.com/business/ng-interactive/2015/apr/29/the-austerity-delusion |access-date=2021-07-19 |website=The Guardian |language=en}}</ref><ref name="lrbv37n04">{{Cite news |last=Wren-Lewis |first=Simon |date=2015-02-19 |title=The Austerity Con |url=https://www.lrb.co.uk/the-paper/v37/n04/simon-wren-lewis/the-austerity-con |access-date=2021-07-19 |work=London Review of Books |language=en |volume=37 |issue=4 |issn=0260-9592}}</ref> Differences include that [[central bank]]s can [[Money creation|print money]],<ref name="npr20130319">{{Cite news |date=2013 |title=How The Federal Budget Is Just Like Your Family Budget (Or Not) |url=https://www.npr.org/sections/itsallpolitics/2013/03/19/174762184/how-the-federal-budget-is-just-like-your-family-budget-or-not |access-date=2021-07-19 |website=NPR.org |language=en}}</ref><ref name="theguardian20130326">{{Cite web |date=2013-03-26 |title=Why the federal budget can't be managed like a household budget |url=http://www.theguardian.com/money/us-money-blog/2013/mar/26/federal-budget-household-finances-fed |access-date=2021-07-19 |website=The Guardian |language=en}}</ref><ref name="theconversation20141216">{{Cite web |last=Smith |first=Warwick |title=Why the federal budget is not like a household budget |url=http://theconversation.com/why-the-federal-budget-is-not-like-a-household-budget-35498 |access-date=2021-07-19 |website=The Conversation |date=16 December 2014 |language=en}}</ref> [[interest rate]]s on government borrowing may be cheaper than individual borrowing,<ref name="npr20130319" /><ref name="theguardian20130326" /> governments can increase their budgets through [[tax]]ation,<ref name="npr20130319" /><ref name="theguardian20130326" /> governments have indefinite planning horizons,<ref name="stlouisfedq42020">{{Cite web |title=Does the National Debt Matter? |url=https://www.stlouisfed.org/publications/regional-economist/fourth-quarter-2020/does-national-debt-matter |access-date=2021-07-19 |website=St. Louis Fed}}</ref> national debt may be held primarily domestically (the equivalent of household members owing each other),<ref name="stlouisfedq42020" /> governments typically have greater collateral for borrowing,<ref>{{Cite journal |last1=Gordon |first1=Roger H. |last2=Varian |first2=Hal R. |date=1988 |title=Intergenerational risk sharing |url=https://linkinghub.elsevier.com/retrieve/pii/0047272788900709 |journal=Journal of Public Economics |language=en |volume=37 |issue=2 |pages=185–202 |doi=10.1016/0047-2727(88)90070-9 |s2cid=52202708 |hdl-access=free |hdl=2027.42/27078}}</ref> and contractions in government spending can cause or prolong [[Financial crisis|economic crises]] and increase the debt of the government.<ref name="lrbv37n04" /> For governments, the main risks of overspending may revolve around [[inflation]] rather than the size of the debt per se.<ref name="theconversation20141216" /><ref name="stlouisfedq42020" />

==Risk==
===Credit (Default) risk===
{{Main|Credit risk}}
Historically, there have been many cases where governments have defaulted on their debts, including Spain in the 16th and 17th centuries, which [[Philip II of Spain#Economy|nullified its government debt]] several times; the [[Confederate States of America]], whose debt was not repaid after the [[American Civil War]]; and revolutionary Russia after 1917, which [[Repudiation of debt at the Russian Revolution|refused to accept responsibility for]] [[Russian Empire|Imperial Russia's]] foreign debt.<ref>{{Cite encyclopedia |last=Hedlund |first=Stefan |encyclopedia=Encyclopedia of Russian History (reprinted in [[Encyclopedia.com]]) |title=Foreign Debt |url=http://www.encyclopedia.com/doc/1G2-3404100454.html |access-date=3 March 2010 |year=2004}}</ref>

If government debt is issued in a country's own [[fiat money]], it is sometimes considered risk free because the debt and interest can be repaid by [[money creation]].<ref>{{cite book | title=The Economics of Money, Banking, and the Financial Markets |edition=7 | first=Frederic | last=Mishkin}}</ref><ref>{{cite web | last1= Tootell | first1=Geoffrey | title=The Bank of England's Monetary Policy | url=https://www.bostonfed.org/-/media/Documents/neer/neer202m.pdf | website=Federal Reserve Bank of Boston |access-date=22 March 2017 }}</ref> However, not all governments issue their own currency. Examples include sub-national governments, like municipal, provincial, and state governments; and countries in the [[eurozone]]. In the [[Greek government-debt crisis]], one proposed solution was for Greece to leave the eurozone and go back to issuing the drachma<ref>M. Nicolas J. Firzli, "Greece and the Roots the EU Debt Crisis" ''The Vienna Review'', March 2010</ref><ref>{{cite web|url=https://www.telegraph.co.uk/finance/financialcrisis/8594698/EU-accused-of-head-in-sand-attitude-to-Greek-debt-crisis.html |archive-url=https://ghostarchive.org/archive/20220112/https://www.telegraph.co.uk/finance/financialcrisis/8594698/EU-accused-of-head-in-sand-attitude-to-Greek-debt-crisis.html |archive-date=2022-01-12 |url-access=subscription |url-status=live |title=EU accused of 'head in sand' attitude to Greek debt crisis |date=23 June 2011 |publisher=Telegraph.co.uk |access-date=2012-09-11}}{{cbignore}}</ref> (although this would have addressed only future debt issuance, leaving substantial existing debt denominated in what would then be a foreign currency).<ref>[https://www.economist.com/news/finance-and-economics/21639591-why-leaving-euro-would-still-be-bad-both-greece-and-currency "Why leaving the euro would still be bad for both Greece and the currency area"]{{spaced ndash}}''[[The Economist]]'', 2015-01-17</ref>

Debt of a sub-national government is generally viewed as less risky for a lender if it is explicitly or implicitly guaranteed by a regional or national level of government. When New York City declined into what would have been bankrupt status [[History of New York City (1946-1977)#1970s|during the 1970s]], a [[bailout]] came from New York State and the United States national government. U.S. state and local government debt is substantial — in 2016 their debt amounted to $3 trillion, plus another $5 trillion in unfunded liabilities.<ref>{{cite news |title=Debt Myths, Debunked |url=https://www.usnews.com/opinion/economic-intelligence/articles/2016-12-01/myths-and-facts-about-the-us-federal-debt |work=U.S. News |date=December 1, 2016}}</ref>

===Inflation risk===
A country that issues its own currency may be at low risk of default in local currency, but if a central bank without [[inflation targeting]] provides finance by buying [[government bond]]s ([[debt monetization]] or indirectly [[quantitative easing]]), this can lead to price [[inflation]]. In an extreme case, in the 1920s [[Hyperinflation in the Weimar Republic|Weimar Germany suffered from hyperinflation]] when the government used money creation to pay off the national debt following [[World War I]].

===Exchange rate risk===
While U.S. Treasury bonds denominated in U.S. dollars may be considered risk-free to an American purchaser, a foreign investor bears the risk of a fall in the value of the U.S. dollar relative to their home currency. A government can issue debt in foreign currency to eliminate ''[[exchange rate]] risk'' for foreign lenders, but that means the borrowing government then bears the exchange rate risk. Also, by issuing debt in foreign currency, a country cannot erode the value of the debt by means of inflation.<ref>{{Cite web|last=Cox|first=Jeff|date=2019-11-25|title=Fed analysis warns of 'economic ruin' when governments print money to pay off debt|url=https://www.cnbc.com/2019/11/25/fed-economists-warn-of-inflation-and-economic-ruin-if-mmt-is-adopted.html|access-date=2020-09-21|website=CNBC|language=en}}</ref> Almost 70% of all debt in a sample of developing countries from 1979 through 2006 was denominated in U.S. dollars.<ref>{{cite web|url=http://www.econstor.eu/bitstream/10419/70557/1/730869520.pdf|title=Empirical Research on Sovereign Debt and Default |publisher=Federal Reserve Board of Chicago |access-date=2014-06-18}}</ref>

==No included or implicit debt==
{{Further|Unfunded mandate}}
Most governments have ''contingent liabilities'', which are obligations that do not arise unless a particular event occurs in the future.<ref name="gfsm"/>{{rp|76}} An example of an ''explicit'' contingent liability is a public sector loan guarantee, where the government is required to make payments only if the debtor defaults.<ref name="gfsm"/>{{rp|210, s.7.252}} Examples of ''implicit'' contingent liabilities include ensuring the payment of future [[pension]] obligations, covering the obligations of subnational governments in the event of a default, and spending for natural disaster relief.<ref name="gfsm"/>{{rp|209–210}}

Explicit contingent liabilities and net implicit social security obligations should be included as memorandum items to a government's [[balance sheet]],<ref name="gfsm"/>{{rp|69, 76–77, 209–212}} but they are not included in government debt because they are not contractual obligations.<ref name="gfsm"/>{{rp|210, s.7.252}} Indeed, it is not uncommon for governments to change unilaterally the benefit structure of social security schemes, for example (e.g., by changing the circumstances under which the benefits become payable, or the amount of the benefit).<ref name="gfsm"/>{{rp|76, s4.49}} In the U.S. and in many countries, there is no money earmarked for future social insurance payments — the system is called a ''[[PAYGO#Social insurance|pay-as-you-go]]'' scheme. According to the 2018 annual reports from the trustees for the U.S. Social Security and Medicare trust funds, [[Medicare (United States)|Medicare]] is facing a $37 trillion unfunded liability over the next 75 years, and [[Social Security (United States)|Social Security]] is facing a $13 trillion unfunded liability over the same time frame.<ref>{{cite news |first=James C. |last=Capretta |title=The financial hole for Social Security and Medicare is even deeper than the experts say |url=https://www.marketwatch.com/story/the-financial-hole-for-social-security-and-medicare-is-even-deeper-than-the-experts-say-2018-06-15 |work=[[MarketWatch]] |date=June 16, 2018}}</ref> Neither of these amounts are included in the U.S. gross general [[National debt of the United States|government debt]], which in 2024 was $34 trillion.<ref>{{cite news|last=Fox|first=Michelle|date=March 1, 2024|title=The U.S. national debt is rising by $1 trillion about every 100 days|publisher=CNBC|url=https://www.cnbc.com/2024/03/01/the-us-national-debt-is-rising-by-1-trillion-about-every-100-days.html}}</ref>

In 2010 the [[European Commission]] required EU Member Countries to publish their debt information in standardized methodology, explicitly including debts that were previously hidden in a number of ways to satisfy minimum requirements on local (national) and European ([[Stability and Growth Pact]]) level.<ref>{{cite web|url=http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:145:0001:0009:en:PDF |title=Council Regulation (EC) No 479/2009 |access-date=2011-11-08}}</ref>

==See also==
{{Div col|colwidth=20em}}
* [[Credit default swap]]
* [[Crowding-in effect]]
* [[Crowding out (economics)|Crowding out]]
* [[Debt clock]]
* [[Debt Sustainability Analysis]]
* [[Financial repression]]
* [[Fiscal multiplier]]
* [[Fiscal sustainability]]
* [[Generational accounting]]
* [[Global debt]]
* [[Government budget balance]]
* [[Government budget deficit]]
* [[Municipal bond]]
* [[Public finance]]
* [[Warrant of payment]]
{{Div col end}}

'''By country:'''
{{Div col|colwidth=20em}}
* [[1980s austerity policy in Romania]]
* [[Latin American debt crisis]]
* [[European debt crisis]]
* [[National debt of the United States]]
{{Div col end}}

'''Lists:'''
{{Div col|colwidth=20em}}
* [[List of countries by credit rating]]
* [[List of countries by external debt]]
* [[Net international investment position#List of countries and regions by net international investment position (NIIP)|List of countries by net international investment position]]
* [[List of countries by government debt]]
* [[List of sovereign debt crises]]
{{Div col end}}

==References==
{{Reflist}}

==Further reading==
* Zeitz, Alexandra (2024). ''The Financial Statecraft of Borrowers'.' Oxford University Press.

==External links==
{{Commons category|Government debt}}
{{Wikiquote}}
{{NIE Poster|Debt, Public|Government debt}}
* [http://blog-pfm.imf.org/ The IMF Public Financial Management Blog]
* [http://stats.oecd.org/Index.aspx?DataSetCode=GOV_DEBT OECD government debt statistics]
* [http://www.mof.go.jp/english/jgbs/reference/gbb/index.htm Japan's Central Government Debt]
* [http://www.rgk.se/ Riksgäldskontoret – Swedish national debt office]
* [https://web.archive.org/web/20211007100044/https://investisc.com/what-is-sovereign-debt/ What is Sovereign Debt]
* [http://www.treasurydirect.gov/NP/BPDLogin?application=np United States Treasury, Bureau of Public Debt – The Debt to the Penny and Who Holds It] {{Webarchive|url=https://web.archive.org/web/20110418203433/http://www.treasurydirect.gov/NP/BPDLogin?application=np |date=2011-04-18 }}
* [http://bancroft.berkeley.edu/ROHO/projects/debt/index.html Slaying the Dragon of Debt, Regional Oral History Office, The Bancroft Library, University of California, Berkeley]
* [https://fraser.stlouisfed.org/theme/71 A historical collection of documents on or referring to government spending and fiscal policy], available on FRASER
* {{cite encyclopedia |last1=Eisner |first1=Robert |author-link=Robert Eisner |editor= David R. Henderson |editor-link= David R. Henderson |encyclopedia=[[Concise Encyclopedia of Economics]] |title=Federal Debt |url=http://www.econlib.org/library/Enc1/FederalDebt.html |year=1993 |edition= 1st |publisher=[[Library of Economics and Liberty]] }} {{OCLC|317650570|50016270|163149563}}
* {{cite web|title=Government's Borrowing Power|url=https://www.debatedwisdom.com/articles/governments-borrowing-power/|website=DebatedWisdom|publisher=3IVIS GmbH|access-date=29 October 2016}}

;Databases
<!-- * [http://eh.net/databases/uspublicdebt Public Debt Database] A complete listing of all Public Debt securities issued by the United States Treasury and its predecessors between 1775 and 1976. -->
* [http://www.iadb.org/research/pub_desc.cfm?pub_id=DBA-007&lang=en CLYPS dataset on public debt level and composition in Latin America]

{{Debt}}

{{Derivatives market|state=collapsed}}{{Authority control}}

{{DEFAULTSORT:Government Debt}}
[[Category:Government debt| ]]
[[Category:Fiscal policy]]