Government Debt

The most essential thing you need to know about countries’ external debt is this: even if the debt-to-GDP ratio is high, a country that pays very low interest amounts is not considered to be at risk. A country with a low debt-to-GDP ratio and very high interest debt is always at more risk than others are. In short, the debt ratio is important, but the interest payments on the debt are more important. 


To see whether the interest rates on the government securities are realistic, it would be best to compare them with the lending rates of the best private sector firms. If the gap between the two rates has grown in favour of government borrowing, it means some things are not exactly compliant with the market reality. Now, bearing this information in mind, let’s take another look at the debt ratios. 


As it is known, the US government is expected to reach the debt limit of $31.385 trillion, fairly surpassing its GDP, which is just over $22 trillion. In fact, the debt stock of developed countries is well above their total GDPs, led by Japan with a debt-to-GDP ratio of around 200%. Japan is followed by Greece with 185%, Italy with 151%, Singapore with 131%, the United States with 126%, Portugal with 122%, Spain with 116%, France with 113%, Belgium with   107% and Canada with 102%. 


Now let’s take a look at the emerging markets and underdeveloped economies: the record holder in this category is Sudan. The debt-to-GDP ratio in Sudan is estimated to have reached 284%, exceeding that of Japan, which has been at the top of the list for years. Cabo Verde is in second place after Sudan with 159%, Eritrea is in third place with 152% and Bhutan is in fourth place with 134%. The debt-to-GDP ratio in Egypt is around 94%, 92% in Brazil, 87% in India, 78% in China, 76% in Hungary, 74% in Argentina and 71% in Pakistan. In Turkey, this ratio was approximately 52% last year.  


Surprisingly, the debt-to-GDP ratio in Russia is around 20%. Although Russia is currently at war with Ukraine, many of Russia’s economic parameters are better than developing countries. Perhaps Putin trusts the country’s finances more than he trusts in its army. At least it seems so, judging by the current situation.