The loans that the government takes on the condition that its pays it back with interest is known as state borrowings.
The government borrows from local sources as well as foreign sources.
It can be shown on the following flow chart:
The borrowings of the state from the monetary market and capital market are known as market borrowing.
Debt Service Payment
Payment of loan instalments with interest on the total state borrowings is known as debt service payment.
The loan instalments on the total borrowings of the government and the interest to be paid on them can be shown as a percentage of domestic production. It is known as debt service ratio.
Different types of debt service ratios can be calculated by using debt instalments and interests, export revenue, government revenue and government expenditure.
The debt service ratios are calculated in different ways an shown as debt service index.
