The Debt-to-GDP ratio measures a country’s debt compared to its gross domestic product. It offers insights into a nation’s economic health, guiding investors, policymakers, and global traders. In simple terms, this ratio shows how much a country owes versus what it produces annually.

What Is the Debt-to-GDP Ratio Now?

As of 2024, global Debt  ratios vary significantly. Advanced economies like the U.S. have a high ratio exceeding 120%, reflecting heavy borrowing post-pandemic.

Emerging economies often have lower ratios, but some face challenges due to external debt burdens. For example, Nigeria’s current Debt ratio is around 35%, indicating a moderate debt level but rising concerns about sustainability in the long term.

Also, Japan’s debt-to-GDP ratio was 253% in 2017 (higher than Greece’s 177% in 2017). Although Japan’s ratio is significantly higher compared to other countries, analysts put the country’s risk of defaulting extremely low. 

Japan is able to sustain and remain afloat despite a staggering ratio due to the fact that most Japanese government bonds are held by the country’s citizens, resulting in extremely low interest rates.

Nigeria’s ratio stood at approximately 35% in 2023. While this seems manageable, experts worry about rising external debt and weak revenue generation. Investors should watch Nigeria’s fiscal strategies closely as global economic uncertainties grow.

Which Countries Have the Lowest Ratio?

Countries with the lowest Debt-to-GDP ratios often have strong fiscal policies or resource-driven economies.

For instance, nations like Brunei and Hong Kong maintain ratios below 10%, supported by robust reserves and limited public debt. These countries demonstrate fiscal discipline, serving as models for debt management.

The US Household Ratio

In addition to national debt, the U.S. tracks household debt relative to GDP. Currently, household debt is approximately 80% of GDP, driven by mortgages, student loans, and credit card balances. This metric highlights consumer spending behavior and financial stability.

Debt-to-GDP Ratio by Country

Ratios fluctuate across the globe:

• Japan: Over 260%—the highest globally, driven by decades of economic stimulus.
• Germany: 67%, reflecting disciplined fiscal policies.
• India: 85%, showing challenges in managing fiscal deficits.

Debt-to-GDP Ratio Formula

The formula for calculating this ratio is straightforward:</span></p><p>Debt-to-GDP Ratio = (Total National Debt / GDP) × 100

For instance, if a country owes $2 trillion and has a GDP of $5 trillion, its ratio would be 40%.

What Is a Good Debt-to-GDP Ratio?

A “good” ratio depends on economic context. Typically, ratios below 60% are deemed sustainable for developed nations. However, emerging economies may aim for even lower ratios due to limited borrowing capacity. High ratios often signal risk but can be manageable with strong economic growth.

Lower ratios indicate better fiscal health, but a high ratio isn’t always negative. For example, Japan’s high ratio is offset by its ability to borrow domestically at low interest rates. A balance between debt and growth is key.

External Debt to GDP Ratio:</h2>

The external Debt-to-GDP ratio measures foreign debt obligations relative to GDP. High external debt can pressure economies, especially those relying on volatile export revenues. Monitoring this metric is vital for countries like Nigeria and Turkey, where external debt impacts currency stability.

Conclusion

This ratio is a important economic metric that influences global trade and investment decisions. 

Understanding how this ratio varies across countries and economies, traders and policymakers can make informed choices. 

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