The national debt is the total amount a government owes to creditors. It accumulates when governments run deficits, spending more than they collect in taxes. The debt is held by domestic and foreign investors, central banks, and other governments, in the form of bonds and other securities.

Debt is not inherently bad. Governments borrow to build infrastructure, fund wars, and respond to crises. The question is sustainability. If debt grows faster than the economy, interest payments consume a rising share of the budget. That crowds out other spending.

Countries with their own currency and central bank rarely default on debt denominated in that currency. They can print money, though that risks inflation. Countries that borrow in foreign currency face tougher constraints. They can run out of reserves and be forced to default, with severe consequences.

Key concepts

• Debt-to-GDP ratio
• Deficit vs. debt
• Interest payments
• Sovereign default
• Credit ratings