Government debt

Government debt (also known as public debt, national debt and sovereign debt) is the debt owed by a central government. (In federal states, "government debt" may also refer to the debt of a state or provincial, municipal or local government.) By contrast, the annual "government deficit" refers to the difference between government receipts and spending in a single year, that is, the increase of debt over a particular year.

Government debt is one method of financing government operations, but it is not the only method. Governments can also create money to monetize their debts, thereby removing the need to pay interest. But this practice simply reduces government interest costs rather than truly canceling government debt, and can result in hyperinflation if used unsparingly.

Governments usually borrow by issuing securities, government bonds and bills. Less creditworthy countries sometimes borrow directly from a supranational organization (e.g. the World Bank) or international financial institutions.