Table of Contents
- What Is the Debt-to-GDP Ratio?
- Formula and Calculation of the Debt-to-GDP Ratio
- What the Debt-to-GDP Ratio Can Tell You
- Good vs. Bad Debt-to-GDP Ratios
- Special Considerations
- What Is the Main Risk of a High Debt-to-GDP Ratio?
- How Does Modern Monetary Theory View National Debt?
- Which Countries Have the Highest Debt-to-GDP Ratios?
- The Bottom Line
What Is the Debt-to-GDP Ratio?
Let me explain the debt-to-GDP ratio directly: it's a metric that compares a country's public debt to its gross domestic product (GDP). This ratio shows you how capable a nation is of paying back what it owes by looking at what it produces versus what it borrows. You can think of it as a percentage, or even as the number of years it would take to clear the debt if all GDP went straight to repayment.
Formula and Calculation of the Debt-to-GDP Ratio
The formula is straightforward: Debt to GDP equals the total debt of the country divided by the total GDP of the country. If a country can keep paying interest on its debt without refinancing and without stunting its growth, it's generally stable. But when the ratio gets high, that country often struggles with external debts owed to outside lenders, and creditors might demand higher interest rates—or stop lending altogether.
What the Debt-to-GDP Ratio Can Tell You
This ratio warns you about risks: the higher it goes, the more likely a default becomes, which can spark panic in domestic and global markets. Governments aim to keep it low, but during wars or recessions, they borrow more to stimulate the economy—that's straight out of Keynesian economics. Proponents of modern monetary theory argue that countries printing their own money can't go bankrupt; they just print more to pay debts. But this doesn't hold for places like EU nations that rely on the European Central Bank for euros.
Good vs. Bad Debt-to-GDP Ratios
Countries with ratios above 77% for long periods see real slowdowns in growth, according to reports like those from World Population Review. Take the US: its ratio hit 120.73% in Q3 2024, nearly double from early 2008 but below the 2020 peak of 132.81%. We've been over 77% since Q1 2009, with historical highs like 106% at the end of World War II, followed by declines, plateaus, and sharp rises after the 2007 crisis and the COVID-19 pandemic.
Special Considerations
The US funds its debt through Treasury securities, considered the safest bonds available. As of November 2024, the top holders include Japan with $1.10 trillion, China at $768.6 billion, and the UK at $765.6 billion, among others like Luxembourg and the Cayman Islands.
Top Holders of US Treasuries
- Japan: $1.10 trillion
- China, Mainland: $768.6 billion
- United Kingdom: $765.6 billion
- Luxembourg: $424.5 billion
- Cayman Islands: $397.0 billion
- Canada: $374.4 billion
- Belgium: $361.3 billion
- Ireland: $338.1 billion
- France: $332.5 billion
- Switzerland: $300.6 billion
What Is the Main Risk of a High Debt-to-GDP Ratio?
The primary risk is a higher chance of default, which can cause global financial fallout.
How Does Modern Monetary Theory View National Debt?
Modern monetary theory holds that sovereign nations can print money as needed, so they're not constrained like households and don't fear rising debt.
Which Countries Have the Highest Debt-to-GDP Ratios?
Japan leads with 248.7% as of 2025, followed by Sudan at 237.1% and Singapore at 175.8%.
The Bottom Line
In summary, the debt-to-GDP ratio helps you gauge a country's debt repayment ability. A lower ratio means the country produces more than it owes, setting it on solid ground.
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