State and local government debt as a percentage of GDP in the United States, per state, for the fiscal year 2019.
Which state’s debt to GDP ratio is the highest?
In reality, in FY21, twenty-seven out of thirty-one states and UTs saw their debt ratio rise by 0.5 to 7.2 percentage points year over year, as states borrowed more to pay routine expenses as well as Covid firefighting, despite a steep drop in income.
The debt-to-GDP ratio was aggravated by the fact that, although the numerator (liabilities) climbed rapidly in FY21, the denominator (nominal GDP) declined sharply. In FY21, the combined budget deficit of states reached a 17-year high of 4.2 percent, while nominal GDP decreased by 3%.
Despite this, the N K Singh-led Fiscal Responsibility and Budget Management (FRBM) Committee recommended that several states, like as Maharashtra (20%) and Gujarat (23%), maintain reasonable debt-to-GDP ratios in FY21.
Punjab topped the list of states with the highest debt-to-GDP ratio in FY21, at 49.1 percent, up 6.6 percentage points from the previous year, according to the latest Reserve Bank of India report on state finances. This is the state’s worst debt ratio since 1991; the high debt is the result of years of budgetary profligacy, including farm loan forgiveness and cheap electricity for vast segments of the population, among other things.
As a result, Punjab’s yearly debt payment obligations are nearly equal to its annual gross borrowings, leaving limited room for asset building. The state has regularly underperformed in terms of capital spending expectations, achieving only 42% of the target in FY21 and 10% in FY20.
Rajasthan’s debt situation also worsened in FY21, with the state’s total liabilities climbing 7.2 percentage points in a year to 42.6 percent. From around 47 percent in FY05, the state’s debt-to-GDP ratio was nearly halved to 24 percent in FY15. The UDAY system for power distribution corporations, which moved the majority of discoms’ debt to the state’s budget, was one reason for the constant growth in the ratio following that.
All states’ liabilities were on the decline, with debt to GDP falling to 21.7 percent in FY15 from 31.3 percent in FY05. After the adoption of UDAY, which was implemented by all states except Odisha, West Bengal, and Delhi, it climbed steadily from FY16 forward.
In FY21, the Centre’s growing deficit pushed its debt-to-GDP ratio to a 14-year high of almost 59 percent. Given that the Centre’s debt load is likely to reach a 16-year high of over 62 percent of GDP by the end of this fiscal year, the general government debt is expected to reach 90 percent of GDP, the highest level since economic liberalisation in FY91.
“Any increase in growth (nominal GDP is expected to grow 17.6% in FY22) will reduce the debt-to-GDP ratio. If the Centre and the states implement the same macroeconomic fiscal framework as the previous budget (more growth-inducing capex), the total debt level might drop to roughly 80% in about five years. Between FY04 and FY10, it happened,” stated N R Bhanumurthy, vice-chancellor of the Bengaluru Dr B R Ambedkar School of Economics University.
In the aftermath of the Asian financial crisis, when GDP slowed to 5.3 percent on average between FY98 and FY03, the government implemented an expansionary fiscal strategy focused on infrastructure expenditure. High growth during this time period reduced general government debt from record highs of 83 percent of GDP in FY04 to roughly 70 percent in FY10.
Even if reducing states’ debt to 20 percent of GDP would be a daunting undertaking, Bhanumurthy noted that reducing debt to 27-28 percent of GDP in the next several years would not be problematic.
The FRBM group proposed a ceiling of 60 percent of GDP for general government debt (including central and state) by FY23 in 2017. Within this overall restriction, the Centre set a 40 percent cap and the states set a 20 percent ceiling.
According to Icra, the states’ fiscal deficit would be at 3.3 percent in FY22, while the Centre’s fiscal deficit will likely exceed the 6.8 percent objective due to a shortfall in disinvestment receipts, and will be around 7.1 percent. In the base scenario for FY23, the states’ budget deficit is estimated to be 3.5 percent, while the federal deficit is estimated to be 5.8 percent.
“Despite the remaining uncertainty, we believe that the Union Budget for FY23 should set aside monies for capital and infrastructure spending that can be realistically absorbed. Such investments will assist to fuel the investment cycle, create jobs, and boost domestic demand. Simultaneously, rationalizing Centrally Sponsored Schemes and Central Sector Schemes would increase fiscal space and improve the quality/efficiency of expenditure, according to Aditi Nayar, ICRA’s chief economist.
Which state has the highest level of debt?
In 2019, the federal state of California has the most amount of outstanding debt of any state, with $506.66 billion. The top five states with the greatest outstanding debt in 2019 were New York, Texas, Illinois, and Florida.
What is an appropriate GDP-to-debt ratio?
It enables them to assess a country’s debt-paying capacity. 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.
New York
With a total debt of nearly $203.77 billion, New York is the most indebted state in the US. New York’s total assets are estimated to be around $106.61 billion, with a debt-to-asset ratio of 273.8 percent. Overspending on Medicaid is the primary cause of New York’s massive debt. In recent years, New York has attempted to close budget gaps by slashing education funding and health-care spending.
New Jersey
New Jersey has the country’s second-highest debt level. The state’s total liabilities are $222.27 billion, which is $198.67 billion more than its assets. The debt-to-income ratio in New Jersey is 441.7 percent. The state’s underfunded pension and benefits scheme for public employees is the main source of debt. Because of the state’s debt and the increased demand to support other priorities such as infrastructure and education, New Jersey politicians are considering tax increases.
Illinois
Illinois has the third-highest debt in the country, with $248.67 in total liabilities. Illinois has an unfunded liabilities of $187.7 billion on its $53.05 billion in assets. This results in a debt-to-income ratio of 468.7%, the highest in the United States. To pay it off, everyone of Illinois’ 12.7 million residents would have to pay $14,780. In Illinois, as in New Jersey, the largest issue contributing to the debt is billions of dollars in pension and health-care benefits for retired government workers.
Massachusetts
Massachusetts is the state with the fourth-highest debt in the country. Massachusetts has a debt of $68.43 billion, with total liabilities of $104.53 billion and total assets of $34.214 billion. The amount of long-term liabilities is 305.5 percent of total assets. Infrastructure and pensions are the two major sources of debt in Massachusetts.
California
California has the fifth-highest debt of any state, with $362.87 billion in total liabilities. California’s total assets are $301.1 billion, resulting in a $55.96 billion net debt and a debt ratio of 120.5 percent. Retirement liabilities, budgetary borrowing, and bond debt are the three types of debt and liabilities that California has. California’s debt totals over $1 trillion when federal, state, and local debts are added together. According to the analysis, the debt would cost each Californian $33,000, or $74,000 per taxpayer.
Is there any state that is debt-free?
Geographically, the states with the least debt are an unusual mix of states. Mountain states like Idaho, Montana, Utah, and Wyoming, as well as upper Midwest states like Nebraska, North Dakota, and South Dakota, made the top ten. Alaska is first, with a debt-to-income ratio of only 14.2 percent. In 2019, it has total liabilities of only $12.65 billion, compared to total assets of $89.17 billion.
What is debt relief in California?
What are the advantages? Debt relief options combine all qualified bills into one modest monthly payment, allowing you to pay off your debts faster and avoid bankruptcy.
Is there a surplus in California?
These elements add up to a $31 billion discretionary excess that the Legislature can use in the 202223 budget process.
The amount of money available for discretionary spending is likely to be less than $31 billion. Our estimate of a $31 billion surplus for 202223 includes: (1) the implemented SFEU balance from 202122 ($4 billion) and (2) the $3.3 billion originally set aside for transportation but instead reverted to the General Fund. As a result, our surplus estimate might be construed as reflecting an SFEU balance of essentially zero. The SFEU balance can be set at any level above zero by the Legislature. SFEU balances of $2 billion to $4 billion have been enacted in recent budgets, which the state has occasionally used to cover costs for unplanned expenditures. As a result, the actual amount of state resources available for increased discretionary spending will be less than $31 billion in actuality.
The Actual Surplus Will Vary. According to our main forecast, the state has a $31 billion surplus. However, revenues might easily exceed or fall short of our main prediction by tens of billions of dollars. The surplus might be as low as $10 billion if revenues in 2021-22 and 2022-23 are at the low end of our most likely alternative scenarios. If receipts are higher than expected, the excess might reach $60 billion.
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.