What does Internal Debt Mean?

A debt is an obligation that a person or entity has to repay or satisfy. It generally refers to an economic obligation that is paid with money, although it can also be a moral obligation. The internal, on the other hand, is that which belongs to the interior of something (that is, to what is inside).

The idea of ​​internal debt, in this framework, refers to the portion of the public debt of a nation whose creditors are citizens of that same nation. The rest of the public debt is constituted by the external debt (the creditors, in this case, are foreigners).

Let’s look at a simple example to understand what domestic debt is. A country X has a public debt of 100 million pesos. Of this total, 40 million correspond to internal creditors (citizens of country X), while 60 million belong to external creditors (citizens of other countries). The internal debt of country X, therefore, is 40 million pesos, while its external debt is 60 million. See Abbreviation Finder for acronyms related to internal debt.

Domestic debt is often made up of bonds and other securities that the State places on the domestic market. If the State issues bonds for 10 million pesos that national investors acquire, that amount becomes part of its internal debt, since in the agreed term it must disburse that money plus the corresponding interest.

In all cases, the figures associated with these concepts are considerably high, given the cost that a country’s needs can reach.

Although this concept may not seem very complex at first glance, both the variables it articulates and its impact on a country’s economy make it a very important issue, which must be studied in depth to understand its scope. In addition to its general definition, there is at least one subclassification that gives rise to two alternatives: gross domestic debt and net domestic debt, which may be more appropriate as a tool to measure a country’s liabilities, depending on the case.

With regard to gross domestic debt, we can say that it is the total amount of credits that have not yet been paid, which must be paid and satisfied within a previously established period (this can be expressed by the adjective payable: «credits payable ») in the same country to the non-financial public sector, denominated in national and foreign currency.

In other words, gross domestic debt is the total money that a government owes, without including other aspects of financial debt, such as assets, in the equation. Simply, it is the total amount that a nation owes to itself (it is worth mentioning that it could also be called gross external debt, although in this case the debt would be with a foreign nation).

On the other hand we have the net internal debt; to define it we must start from the gross and subtract the total of the obligations that the banking system has towards the Public Sector. This helps us understand that net debt is usually less than gross debt. Among the common assets that we must subtract to find this value are debt instruments, insurance, loans, gold securities, some items of accounts receivable and pensions.

The idea of ​​internal debt is also often used in a symbolic sense to refer to those problems suffered by the inhabitants of a country and that governments are unable to solve: “Illiteracy is an internal debt that we have dragged on for decades”, “The lack of hospitals of high complexity in the north was an internal debt: that is why we invested millions of pesos to pay it off”.

internal debt