Sovereign Debt

Definition

Sovereign debt is the total amount of money owed by a national government, typically issued through government bonds and treasury securities. It is a critical indicator of a country's fiscal health and creditworthiness. When sovereign debt becomes unsustainable relative to GDP and revenue, it can lead to default, restructuring, or bailout scenarios. Credit rating agencies assess sovereign debt risk, and downgrades can trigger capital flight and higher borrowing costs. The relationship between sovereign debt and geopolitical stability is significant: heavily indebted nations may lose policy autonomy to creditors or international financial institutions.