Why Do Governments Borrow?

Deficits, bonds and interest, with the US Treasury's own interest figures.

About 25 minutes · high school

The idea

A government borrows when it spends more in a year than it collects in taxes and other revenue. That gap is the deficit. To cover it, the government sells bonds: promises to repay the money later, with interest along the way. Each year’s deficit adds to the debt, the total still owed.

Governments borrow more in some years than others: in recessions, when tax revenue falls and spending on support rises; in wars and pandemics; and to pay for things meant to last, such as roads and schools. The buyers of their bonds include savers, pension funds, banks, other countries’ central banks and, at times, the country’s own central bank.

What borrowing costs

In fiscal year 2026 the US Treasury’s interest expense on debt held by the public was $1.07 trillion, and the average interest rate on its debt was 3.58%.

US debt held by the public, the part owed to lenders outside the government, was $32.77 trillion at the latest Treasury close.

Around the world, Egypt spends about 61% of its government revenue on net interest, against about 10% for the United States (IMF figures for 2025).

Worksheet

In your own words, what is the difference between a deficit and the debt?
The US paid about $1.07 trillion in interest to the public in fiscal 2026. About how much is that per day?
Debt held by the public is about $32.77 trillion. If the average interest rate rose by one percentage point, roughly how much more interest would that cost each year once all of it had been refinanced?
Egypt spends about 61% of its revenue on interest. What share is left for everything else, such as schools, health care and defense?
Give two different reasons a government might decide to borrow.

Answer key

The deficit is the gap between spending and revenue in one year; the debt is the total still owed from all past years’ borrowing.
About $2.9 billion a day: $1.07 trillion ÷ 365.
About $327.7 billion a year: 1% of $32.77 trillion. In reality it takes years, because older bonds keep their original rate until they mature.
About 39% of its revenue.
Any two of: a recession, a war, a pandemic or disaster, or paying for long-lived projects such as infrastructure; also simply covering a gap between spending and taxes.

To discuss

Is borrowing to build a road the same as borrowing to pay this year’s salaries?
Who loses if a government cannot repay: its lenders, its citizens, or both? (See what happens when a country defaults.)
Why might a government that borrows in its own currency face different risks from one that borrows in another country’s?

Words to know

Deficit: Spending minus revenue over one year.
Bond: A loan to a government or company, repaid on a set date with interest.
Interest rate: The yearly cost of borrowing, as a percentage of the amount borrowed.
Debt held by the public: Government debt owed to lenders outside the government itself.
Intragovernmental debt: Debt one part of the government owes another, such as the Social Security trust funds.

Figures as of November 9, 2026, from the IMF World Economic Outlook (October 2026) and the US Treasury, as used across this site. These lessons are free to use, copy and adapt under CC BY 4.0; please credit Global Debt Clock. No sign-up, and no ads on these pages. Suggestions: [email protected].