Debt-to-GDP Ratio

(redirected from Debt-GDP Ratios)

Debt-to-GDP Ratio

A ratio of a country's national debt to its GDP. The debt-to-GDP ratio is one way to estimate whether or not a country will be able to repay its debt. The higher the ratio is, the more likely a country is to default because its government has borrowed too much relative to the ability of the country as a whole to repay. This may affect the country's sovereign credit rating. However, this ratio is not the only metric used. For example, the United States and the United Kingdom maintain national debts that approach 100% of GDP, but both have AAA credit ratings because the political risk in both countries is very low.
References in periodicals archive ?
Fiscal consolidation requirements in the OECD countries are summarized as: 'Consolidation requirements are substantial; merely to stabilise debt-GDP ratios by no later than 2025 requires strengthening the underlying primary balance from the current position by more than 5 per cent of GDP in the OECD area on average.
Figure 3: Highest and lowest median initial Debt-GDP Ratios and median GDP growth, 1981-2009 Median Debt Median Real GDP (1981-2009) growth (1981-2009) Above 120% Debt 170.
As growth declines, debt-GDP ratio rises, so the causality may run from low growth to high debt-GDP ratios.
For example, high public debt could be used to improve schooling which is found to have a larger positive impact on growth than the estimated negative impact of public debt-GDP ratios.
To reinforce this point we construct bar diagrams with median debt-GDP ratios and median growth rates for different sub-periods in Figure 2.
We find that the negative relationship between debt and GDP growth is influenced by outliers or exceptionally high debt-GDP ratios.
But it appears as though the country has at least 10 years of debt-GDP ratios that are lower--sometimes considerably lower--than ratios that are common in Japan, many developed European economies, and in emerging markets.
Small changes in large programs can have a significant effect on future debt-GDP ratios.
Keywords: fiscal policy, federal debt, interest costs, debt-GDP ratio, health costs, entitlements
Even while the deficit is relatively low, it is not low enough to lower the debt-GDP ratio significantly.
But there is no denying that it will be extremely difficult politically to put the debt-GDP ratio on a persistent downward path.
The country has long coped with similar debt-GDP ratios for some 20 years after profligate government spending in the 1980s.