The statistics of the public debt of the Republic of Croatia show that in spite of considerable positive advances in the statistical purview of the public sector, the purview of the public debt is not complete even in the narrowest understanding of the concept of public debt. For this reason it is necessary precisely to determine what should be a part of the public debt, and separate the internal from the external public debt. Available data about the state of the total public debt confirm the thesis that the Croatian public debt in 1997 was of moderate size (about 33% of GDP) but show that its structure is changing: the reduction of the internal debt is accompanied by a rise in the external indebtedness of the public sector. Because of the general economic situation, the open savings-investment gap and debt inherited from the former state of Yugoslavia there are many challenges before public debt policy. Since most of the new net borrowings abroad in 1997 were accounted for by public and publicly guaranteed debt, the decision makers have to pay particular attention to the proper use of the funds borrowed and to a cautious approach to the issue of state guarantees. Bearing in mind the possibility of refinancing the debt, a small and open country like Croatia cannot be compared with highly developed countries the debts of which are always refinanced and in fact never fall due for payment. For Croatia, glitches in the world capital markets could have very serious consequences, and it is necessary to be prepared for future challenges as soon as possible.