---
title: "Sovereign Debt Definition and Importance | Model Diplomat"
description: "Sovereign debt is money borrowed by a national government. It's crucial for understanding fiscal policy and is used by economists and policy researchers."
url: "https://modeldiplomat.com/learn/glossary/sovereign-debt"
---

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Model Diplomat Research Team · Last reviewed June 22, 2026

TL;DR

- Sovereign debt is the money a national government borrows, domestically or externally, by issuing bonds or contracting loans against its own credit and taxing power.
- What is the difference between domestic and external sovereign debt?
- Why can sovereigns not be made bankrupt like companies?
- Which constitutional provisions govern government borrowing in India?
- What is the G20 Common Framework?

[Civil Service & Diplomatic Exams](https://modeldiplomat.com/learn/civil-services/glossary)Updated June 22, 2026

Sovereign debt is the money a national government borrows, domestically or externally, by issuing bonds or contracting loans against its own credit and taxing power.

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In April 2022 Sri Lanka declared a pre-emptive default on roughly US$51 billion of external sovereign debt, its first since independence, and sought an IMF bailout and restructuring under the G20 Common Framework.

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