The ratio between the debt a country owes to non-resident creditors and its nominal GDP is known as external debt as a percentage of GDP. The portion of a country’s overall debt that was borrowed from foreign lenders, such as commercial banks, governments, or international financial institutions, is known as external debt. Individuals, corporations, and the government can all be debtors. The outstanding amount of actual current and not contingent liabilities due to non-residents by inhabitants of the country, which require the debtor to pay principle and/or interest at some point(s) in the future, is referred to as the external debt. Foreign debt is another term for external debt.
For the last five years, the table below illustrates external debt as a proportion of gross domestic product (GDP) by country.
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What does a healthy debt-to-GDP ratio look like?
A high ratio, such as 101 percent, indicates that a country is unable to repay its debt. A ratio of 100 percent shows that there is just enough output to pay debts, whereas a lower ratio suggests that there is enough economic output to cover debts. GDP is equivalent to a country’s income if it were a family.
What does it mean to have a high external debt-to-GDP ratio?
Stability is defined as a country’s ability to continue paying interest on its debt without refinancing or impeding economic progress. External debts (sometimes known as “public debts”), which are any balances owed to foreign lenders, are often difficult to pay off in a country with a high debt-to-GDP ratio. Creditors are more likely to seek higher interest rates when lending in such circumstances.
What does “external debt” imply?
- The part of a country’s debt that is borrowed from overseas lenders via commercial banks, governments, or international financial institutions is referred to as external debt.
- A sovereign default occurs when a country fails to repay its external debt.
- External debt can take the form of a tethered loan, in which the borrower is required to apply any cash spent to the country that provided the loan.
Which country’s debt-to-GDP ratio is the highest?
Venezuela has the highest debt-to-GDP ratio in the world as of December 2020, by a wide margin. Venezuela may have the world’s greatest oil reserves, but the state-owned oil corporation is thought to be poorly managed, and the country’s GDP has fallen in recent years. Simultaneously, Venezuela has taken out large loans, increasing its debt burden, and President Nicolas Maduro has tried dubious measures to curb the country’s spiraling inflation.
Why is the United States’ debt so high?
Since its inception, debt has been an element of this country’s activities. Following the Revolutionary War, the United States government became indebted in 1790. 9 Since then, further wars and economic downturns have fuelled the debt over the decades.
Why is Japan so in debt?
The Japanese public debt is predicted to be around US$12.20 trillion (1.4 quadrillion yen) as of 2022, or 266 percent of GDP, the largest of any developed country. The Bank of Japan holds 45 percent of this debt.
The collapse of Japan’s asset price bubble in 1991 ushered in a long period of economic stagnation known as the “lost decade,” with real GDP decreasing considerably during the 1990s. As a result, in the early 2000s, the Bank of Japan embarked on a non-traditional strategy of quantitative easing to inject liquidity into the market in order to promote economic growth. By 2013, Japan’s public debt had surpassed one quadrillion yen (US$10.46 trillion), more than twice the country’s yearly gross domestic product and already the world’s highest debt ratio.
Japan’s public debt has continued to climb in response to a number of issues, including the Global Financial Crisis in 2007-08, the Tsunami in 2011, and the COVID-19 epidemic, which began in late 2019 and has consequences for Tokyo’s hosting of the 2020 Summer Olympics. In August 2011, Moody’s downgraded Japan’s long-term sovereign debt rating from Aa2 to Aa3 due to the country’s large deficit and high borrowing levels. The ratings drop was influenced by substantial budget deficits and government debt since the global recession of 2008-09, as well as the Tohoku earthquake and tsunami in March 2011. The Yearbook of the Organisation for Economic Co-operation and Development (OECD) noted in 2012 that Japan’s “debt surged above 200 percent of GDP partially as a result of the devastating earthquake and subsequent reconstruction efforts.” Because of the growing debt, former Prime Minister Naoto Kan labeled the issue “urgent.”
Which country will have the biggest debt in 2021?
What countries have the world’s largest debt? The top 10 countries with the largest national debt are listed below:
With a population of 127,185,332, Japan holds the world’s biggest national debt, accounting for 234.18 percent of GDP, followed by Greece (181.78 percent). The national debt of Japan is presently $1,028 trillion ($9.087 trillion USD). After Japan’s stock market plummeted, the government bailed out banks and insurance businesses by providing low-interest loans. After a period of time, banking institutions had to be consolidated and nationalized, and other fiscal stimulus measures were implemented to help the faltering economy get back on track. Unfortunately, these initiatives resulted in a massive increase in Japan’s debt.
The national debt of China now stands at 54.44 percent of GDP, up from 41.54 percent in 2014. China’s national debt currently stands at more than 38 trillion yuan ($5 trillion USD). According to a 2015 assessment by the International Monetary Fund, China’s debt is comparatively modest, and many economists have rejected concerns about the debt’s size, both overall and in relation to China’s GDP. With a population of 1,415,045,928 people, China currently possesses the world’s greatest economy and population.
At 19.48 percent of GDP, Russia has one of the lowest debt ratios in the world. Russia is the world’s tenth least indebted country. The overall debt of Russia is currently about 14 billion y ($216 billion USD). The majority of Russia’s external debt is held by private companies.
The national debt of Canada is currently 83.81 percent of GDP. The national debt of Canada is presently over $1.2 trillion CAD ($925 billion USD). Following the 1990s, Canada’s debt decreased gradually until 2010, when it began to rise again.
Germany’s debt to GDP ratio is at 59.81 percent. The entire debt of Germany is estimated to be around 2.291 trillion ($2.527 trillion USD). Germany has the largest economy in Europe.
What is the size of the Philippine debt?
In January 2022, the Philippine government’s outstanding debt would reach P12.03 trillion, the country’s highest debt pile to date. Domestic debt increased by 2.4 percent, or P197 billion, to P8.37 trillion.
What is the difference between domestic and external debt?
There are three different ways to define external (and consequently domestic) debt. The first focuses on the currency used to issue the debt (with external debt defined as foreign currency debt). The second focuses on the creditor’s domicile (external debt is debt owed to non-residents).
What factors contribute to foreign debt?
Nigeria has a number of external debt obligations, some of which are significant.
The growing magnitude of Nigeria’s external debt, which stood at US$29 billion at the end of 2000, was due to a number of factors. The rapid expansion of government spending, notably on capital projects, borrowing from the international community at non-concessional interest rates, the reduction in oil earnings since the late 1970s, and the country’s reliance on imports all contributed to the emergence of trade arrears. Short and medium-term loans made up around 85.0 percent of the overall debt stock in 1986. As a result of the aforementioned circumstances, debt service was bundled together, exacerbating the financial position. In addition, changes in the interest rate had an impact on the size of the externaldebt stock.