Jump to content

Debt to GDP Ratio by Country: State of Global Debt 2022


MongiIG

295 views

Debt to GDP Ratio by Country: State of Global Debt 2022

  • The EU scraps debt promises, for now
  • Debt to GDP league champ: Japan
  • China’s debt to GDP rate is probably too good to be true

The COVID-19 pandemic led governments to spend massively in emergency support, forcing them to run big deficits that have resulted in historically and rising high debt. The debt to GDP ratio by country, particularly seen in Europe, Japan and other large, global economies, has surged. This debt constitutes a significant risk as central banks start to raise interest rates, making new debt more expensive and existing bonds worth less. Central banks are also halting asset purchases, removing an important price support for government bonds.

THE STATE OF GLOBAL DEBT, BY COUNTRY

Debt to GDP Ratio by Country: State of Global Debt 2022

Source: Visual Capitalist

Brookings Institution economists have calculated that overall global debt rose by 30 percentage points in 2020, to 263% of GDP. Government debt rose 13 points to 97% of GDP, with advanced economies rising 16 points to 120%.

Governments threw debt caution to the winds as central bank purchases of bonds effectively monetized the debt, allowing politicians to spend and borrow freely. Ultra-low interest rates, in some cases negative, reduced the cost of borrowing.

Modern monetary theory had already paved the way for this change in attitude by hypothesizing that countries with fiat currencies, such as USD or JPY, could issue debt more or less without limits. However, mainstream economists argue that high levels of debt stifle growth and are not sustainable. They cite problems like higher taxes, lower future incomes, and growing inequity between generations.

DEBT TO GDP RATIO: THE US

The ratio of government debt to GDP soared especially in the big advanced economies. In the US, that ratio reached 137.2% in 2021, according to estimates by the administration. That’s up from 128.1% in 2020, and 106.8% in 2019.

THE EU SCRAPS DEBT PROMISES, FOR NOW

Before interest rates fell, a 60% ratio was considered the maximum sustainable and 100% seemed outrageously high. The European Union enshrined the 60% ratio in its so-called Stability Pact limiting debt to 60% and deficits to 3% of GDP for those using the joint euro currency. The EU, which observed these limits only fitfully in the past, has now bowed to reality and suspended them through 2023.

DEBT TO GDP LEAGUE CHAMP: JAPAN

The league champion in debt to GDP has been Japan, where government debt rose to 266% of GDP by the end of 2020. Japan has defied conventional debt rules for years due to the public’s high propensity to save and to channel these savings into domestic bonds. But the 2020 figure was up significantly from 238% in the previous year.

Greece is a distant second with 193% in 2021, but the Greek economy is No. 53 in the world while Japan is No. 3 and has a much bigger impact.

CHINA’S DEBT TO GDP: TOO GOOD TO BE TRUE?

China, the world’s second-largest economy, registered a 2020 debt ratio of 66.8%, but the reliability of data from the notoriously opaque economy is an open question. The UK, which ranks fifth among world economies, came in at 94% in 2020, up from 82.7% the previous year.

Debt amounts and debt to GDP ratios for any country can vary considerably depending on which figures are used.

President Joe Biden boasts that the US government will reduce this year’s deficit by $1.5 trillion as government support for businesses and individuals fades out. But a lower deficit will slow the build-up of debt but by itself won’t reduce the debt to GDP ratio.

The optimistic plan for reducing the elevated debt to GDP ratio in the US and other advanced economies rests on strong economic growth (increasing the GDP denominator) that outpaces the growth in debt, which should be constrained by fiscal discipline.

This is easier said than done. Another scenario would see surging inflation reducing the relative amount debt, while at the same time allowing growth in the nominal GDP. Fitch Ratings, for one, has forecast that inflation in 2022 can bring a reduction in the global debt to GDP ratio by 2.0 percentage points.

Inflation has its own costs, however, and poses a political problem. A central bank-induced recession to tame inflation would lower GDP and likely increase the deficit by reducing tax revenue. There is, in short, no easy way out.

 

Jul 27, 2022 | DailyFX
Darrell Delamaide

  • Like 1

1 Comment


Recommended Comments

The "Debt to GDP Ratio by Country: State of Global Debt 2022" article

highlights some crucial points.

But I wonder if these Debt-to-GDP figures by governments are reliable, as often accounting rules and practices varies and fudged by use of assumptions.

Most central banks have proven to show they either do not have good applicable skills in the achievement of long term stability, or the theories they used IS THE PROBLEM, ALONG WITH THEIR ASSUMPTIONS. It is, with them, always a roller coaster ride.  And, they did not even see the recession coming, until it was upon us, or someone pointed it out ( to those they listen to ), that it is in progress, before the rest found out. The 2007 recession, for example, where almost everyone was thinking and claiming a great economy, as even when the markets had already started to fall from their all-time high of that time, months later the very big fall occurred.

QE's really served to do the opposite to the intended goal. Not surprising since the money supply was violated by over-use, or is it abuse?

Maybe it has been some generations past now when private economy, industry and banks use to handle their affairs without government interference. Once upon a time there were no phony laws passed with the aid of bankers wanting "easy and relaxed financial laws", and help with bail outs to save the top banks and big companies when they fail ( as in 2008) or "free" subsidies.

if they fail, whether its the external event that brings the critical trouble, or its by their own mess created, their CEOs and executives failed to plan for such occurrences and use prudent financial practices. After all, we have had many boom and bursts and shown the need to take it into account. Yet, NO cushion of cash kept aside for the rainy day by many companies, instead reckless binging on debts. Central banks happy to encourage such practices too, thus creating an unintended future potential spiralling domino effect collapse. 

Politicians too weak to confront this very problem at their feet. Perhaps the current culture of appeasing the public to spend, spend and over-spend in their 5-year term, and the confused blind belief in the central bankers and economists by pushing aside the traditional prudent practices and personal responsibilities of individuals, companies and bankers. Private industry use government as a punch bag or for "free money" to bail them out when needed.

EVERYONE HAS FORGOTTEN THAT GOVERNMENT, ONCE UPON A TIME EVERYWHERE BALANCED THEIR BOOKS ANNUALLY.   BUT APPEASING POLITICIANS, AND BANKERS, HAVE VESTED INTEREST IN EXPANDING DEBTS, EACH FOR THEIR OWN PURPOSE. GOVERNMENRTS ARE THERE TO GOVERN, TO SEE THAT GOOD AND JUST LAWS EXISTS, ARE USED, ETHICS MAINTAINED, MONITOR GOOD PRUDENT PRACTICS AND ARE UNDERTAKEN BY INDUSTRY, NOT CREATIVE ACCOUNTING, NOT BE OVERLY-INDEBTED AND BAISC BUSINESS / FINANCIAL GUIDENCE USED.

IF THEY CONSIDER ALL THIS IS TAKING PLACE, THIS FELLOW HAS GOT IT WRONG, THEN THERE SHOULDN'T BE ANY BUST ISSUES ANYWHERE, SHOULD THERE?

WOULD YOU FINANCE, TO ANY DEGREE,  A COMPANY WITH MILLIONS TO TRILLIONS IN VALUATION BUT HAVE NONE OR LITTLE CASH FLOW, NO PROFITS EVER, AND EVEN HUGE DEBTS? 

WOULD YOU FINANCE, TO ANY DEGREE, A SPECIAL PURPOSE COMPANY, THAT DOES NOT SAY WHAT IT WILL USE THE MONEY FOR?

BANKERS SEEM TO BE HAPPY TO ALLOW IT, ECONOMISTS DON'T SEE THE PROBLEM WITH THAT, POLITICIANS APPEAR TO BE BLIND TO THE ERROR OR FLAWS IN IT, AND FINANCIERS AND INVESTERS ARE WILLING TO GAMBLE WITH IT.  SO WHAT COULD GO WRONG?

MAYBE THER IS NOTHING WRONG AT ALL. NO FLAWS. MAYBE IT IS JUST ME WITH A SENSE OF "SOMETHING WRONG HERE, SOMEWHERE" FEELING. DO YOU HAVE A SIMILAR FEELING?

 

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...