Internal and external national debt refers to the sources from which a country borrows money, and they differ in terms of creditors, currency, and economic impact. Internal debt is borrowed from within the country, typically from domestic institutions, businesses, or individuals. It is usually denominated in the local currency and includes instruments like government bonds, treasury bills, and savings certificates. Since it is owed to domestic entities, internal debt has a lower risk of currency fluctuation and is easier to manage through monetary policy.

External debt, on the other hand, is borrowed from foreign lenders, such as other governments, international organizations (e.g., IMF or World Bank), or foreign investors. It is often denominated in foreign currencies, making it susceptible to exchange rate risks. Repaying external debt can strain a country’s foreign exchange reserves and impact its balance of payments.

The economic implications also differ. Internal debt redistributes resources within the economy, while external debt involves transferring resources abroad, potentially leading to dependency on foreign lenders. High external debt can also affect a country’s credit rating and borrowing costs. Both types of debt require careful management to ensure fiscal stability and sustainable economic growth. Balancing internal and external debt is crucial for maintaining financial health and minimizing risks.