What is Sovereign Debt?

Before knowing about the sovereign debt, you must know about the other two terms Sovereign Bond and Government Bond. Government Bonds Bonds are debt instruments issued by the government, banks, companies to raise t he money from public. This money will be used for meeting the future expenses, e xpansion plans for the companies, building infrastructure for the country, etc. In short, the bond holders are the lenders to the bond issuers. When government is in short of money, it will issue the bonds in its local curre ncy or the international currency. If the bonds are in the local currency, it is called as the Government Bonds. People would be more interested in buying the g overnment bonds because of its high security and returns are assured. It is a fi xed income instrument. Bond holders would receive the specified interest income on the specified periods. The principal amount will be returned at the time of m aturity. The government bonds are categorized based on the tenure of the bonds. * Government Bills: Bonds with maturity period of less than one year. * Government Notes: Bonds with maturity period of one year to ten years. * Government Bonds: Bonds with maturity period of more than ten years Sovereign Bonds I hope now you have understood the government bonds. As I have mentioned in the above section, government bonds are issued in the local currency. The main diffe rence between government bonds and sovereign bonds are the issuing currency. Sov ereign bonds are issued in the international currency and it can be sold to the other countries and foreign investors. It is very common that when a country nee ds huge capital to support the spending, it can borrow money from other countrie s by issuing the sovereign bonds. It has to pay the interest money on specific p eriod and principal amount on the maturity period. Now you must have got the basic idea on the sovereign debt by reading the above section about sovereign bonds. Sovereign debt is bonds sold to other countries or money borrowed from outside (it is equivalent of borrowing money from other c ountries or public) to meet the country s spending. It has to be repaid on the mat urity and will have to pay the interest for that borrowings. This will grow by s ize if a country can not increase the income from taxes because of economic grow th is very slow.