Floating Debt:

Floating debt here means debts made by the government of temporary nature. For example, the Central Government takes loans of temporary nature from the Bank and issues special securities which are non-negotiable and non-interest bearing (generally issued for not more than 12 months). This type of floating debt aims at providing short-term debt to the government to bridge the gap between revenue and expenditure. Such debt needs to be redeemed at the specified dates/time of maturity. Many a time, the floating debt carries either nil or less rate of interest if the debt is redeemed. When the government fails to redeem, it may be converted as permanent debt and becomes a burden due to an increase in the interest rate. So the floating debt should be repaid as per the maturity of the loan. The Central Bank of the country generally stipulates the amount of floating debt that can be undertaken by government.