Since the United States is a democracy that chooses its government representatives from its own citizenry, we refer to the debt accumulated by the government as the “national debt” or “the debt of the nation.” In the past, when monarchies were the main form of government, the debt was referred to as “sovereign debt” since it was debt accumulated by the monarchy as opposed to the nation’s citizens. Today, the terms “national debt,” “government debt,” and “sovereign debt” are all conceptually the same and are used interchangeably.
As the government draws its income from much of the population, government debt is an indirect debt of the taxpayers. Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders). Sovereign debt usually refers to government debt that has been issued in a foreign currency. Another common division of government debt is by duration until repayment is due. Short term debt is generally considered to be for one year or less, long term is for more than ten years. Medium term debt falls between these two boundaries. A broader definition of government debt may consider all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid.
Government debt, especially that held in bonds denominated in foreign currencies.
Under the doctrine of sovereign immunity, the repayment of sovereign debt cannot be forced by the creditors and it is thus subject to compulsory rescheduling, interest rate reduction, or even repudiation. The only protection available to the creditors is threat of the loss of credibility and lowering of the international standing (the sovereign debt rating) of a country, which may make it much more difficult to borrow in the future.